Asset allocation is the mixture of cast, bonds and stocks (and possibly other investments) that make up an investor's portfolio and research by SMO Fitzgerald Global shows that it is the single most important factor when measuring the overall success of an investment strategy. An example of such might be a 10% cash, 20% bonds and 70% stocks mix.
These are the asset categories you would likely choose from when investing in a retirement savings program or a college savings plan. But other asset categories - including real estate, precious metals and other commodities, and private equity - also exist, and some investors may include these asset categories within a portfolio. Investments in these asset categories typically have category-specific risks. Before you make any investment, you should understand the risks of the investment and make sure the risks are appropriate for you.
Over the long term, 10 plus years, stocks are by far the highest performing asset class, followed by bonds and lastly by cash products. However stocks do incur greater risk than bonds, which in turn carry greater risk than cash.
The allocation mix is one of the prime ways that investors manage their portfolio. Those with longer to go until their retirement can absorb greater risk and SMO Fitzgerald Global suggests they hold a greater percentage of stocks in their portfolio. Those on the cusp of retirement tend to move most of their funds into bonds in order to protect their gains.
One important lesson to remember is that human behavior in the marketplace remains constant. Investment decisions should be the product of rational trade-offs between risk and return, but unfortunately they generally reflect an emotional response to fear and anxiety.
In addition, asset allocation is important because it has major impact on whether you will meet your financial goal. If you don't include enough risk in your portfolio, your investments may not earn a large enough return to meet your goal.
A general rule that is often quoted is to hold 100 minus your current age in stocks, that is, a 30 year old should hold 70% (100 - 30) of their portfolio in stocks. Many consider this to be slightly conservative but personal beliefs and risk tolerance of the individual investor will play a part in the final make up.
Ultimately, SMO Fitzgerald Global recognizes that to beat the market investors have to be very skilled, highly dedicated and very lucky. Having adequate asset allocation takes the timing risk out of investing and makes the market do all of the work.
These are the asset categories you would likely choose from when investing in a retirement savings program or a college savings plan. But other asset categories - including real estate, precious metals and other commodities, and private equity - also exist, and some investors may include these asset categories within a portfolio. Investments in these asset categories typically have category-specific risks. Before you make any investment, you should understand the risks of the investment and make sure the risks are appropriate for you.
Over the long term, 10 plus years, stocks are by far the highest performing asset class, followed by bonds and lastly by cash products. However stocks do incur greater risk than bonds, which in turn carry greater risk than cash.
The allocation mix is one of the prime ways that investors manage their portfolio. Those with longer to go until their retirement can absorb greater risk and SMO Fitzgerald Global suggests they hold a greater percentage of stocks in their portfolio. Those on the cusp of retirement tend to move most of their funds into bonds in order to protect their gains.
One important lesson to remember is that human behavior in the marketplace remains constant. Investment decisions should be the product of rational trade-offs between risk and return, but unfortunately they generally reflect an emotional response to fear and anxiety.
In addition, asset allocation is important because it has major impact on whether you will meet your financial goal. If you don't include enough risk in your portfolio, your investments may not earn a large enough return to meet your goal.
A general rule that is often quoted is to hold 100 minus your current age in stocks, that is, a 30 year old should hold 70% (100 - 30) of their portfolio in stocks. Many consider this to be slightly conservative but personal beliefs and risk tolerance of the individual investor will play a part in the final make up.
Ultimately, SMO Fitzgerald Global recognizes that to beat the market investors have to be very skilled, highly dedicated and very lucky. Having adequate asset allocation takes the timing risk out of investing and makes the market do all of the work.
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