However, the consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make.
However, the consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make. In other words, the selection of individual securities is secondary to the way that assets are allocated in stocksbonds, and cash and equivalents, which will be the principal determinants of your investment results.
Investors may use different asset allocations for different objectives.
Someone who is saving for a new car in the next year, for example, might invest her car savings fund in a very conservative mix of cash, certificates of deposit CDs and short-term bonds. Another individual saving for retirement that may be decades away typically invests the majority of his individual retirement account IRA in stocks, since he has a lot of time to ride out the market's short-term fluctuations.
Risk tolerance plays a key factor as well. Age-based Asset Allocation In general, stocks are recommended for holding periods of five years or longer. Cash and money market accounts are appropriate for objectives less than a year away. Bonds fall somewhere in between.
In the past, financial advisors have recommended subtracting an investor's age from to determine how much should be invested in stocks.
Variations of the rule recommend subtracting age from or given that the average life expectancy continues to grow. As individuals approach retirement age, portfolios should generally move to a more conservative asset allocation so as to help protect assets that have already been accumulated.
Achieving Asset Allocation Through Life-cycle Funds Asset-allocation mutual fundsalso known as life-cycle, or target-date, funds, are an attempt to provide investors with portfolio structures that address an investor's age, risk appetite and investment objectives with an appropriate apportionment of asset classes.
However, critics of this approach point out that arriving at a standardized solution for allocating portfolio assets is problematic because individual investors require individual solutions.
The Vanguard Target Retirement Fund would be an example of a target-date fund. As ofthe fund has a year time horizon until the shareholder expects to reach retirement.Whether an investor chooses a precise asset allocation strategy or a combination of different strategies depends on that investor’s goals, age, market expectations and risk tolerance.
A Modern Approach to. Asset Allocation and Portfolio Construction. our views about the appropriate asset mix for different types of investors, and explains the process of constructing a As we examine the role of asset allocation in investor portfolios today, it’s. Common types of assets include: current, non-current, physical, intangible, operating and non-operating.
Correctly identifying and classifying the types of assets is critical to the survival of a company, specifically its solvency and risk.
An asset is a resource controlled by a . Asset allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon.
Asset allocation is the rigorous implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment time frame.
The three main types of assets While there are literally tens of thousands of possible investments to make in your brokerage account, they can all be separated into one of three categories. 1.