Your asset allocation strategy represents your personal decisions about how much of your portfolio to allocate to various investment categories, such as stocks, bonds, cash, and others. Some of the advantages of an asset allocation strategy include:
Providing a disciplined approach to diversification. An asset allocation strategy is another name for diversification, an important strategy for reducing portfolio risk. Since different investments are affected differently by economic events and market factors, owning various types of investments helps reduce the chance that your portfolio will be adversely affected by a particular risk type.
Eliminating the need to time investment decisions. Not only do investment professionals have a difficult time accurately predicting the market’s movements, but waiting for the perfect time to invest keeps many investors on the sidelines. With an asset allocation strategy, you don’t have to worry about timing the market.
Reducing the risk in your portfolio. Investments with higher returns typically have high-er risk and more volatility in year-to-year returns. Asset allocation combines more aggressive investments with less aggressive ones. This combination can help reduce your portfolio’s overall risk.
Adjusting your portfolio’s risk over time. Your portfolio’s risk can be adjusted by changing allocations for the different investments you hold. By anticipating changes in your personal situation, you can make those changes gradually.
Your asset allocation strategy will depend on a variety of factors unique to your situation, including your risk tolerance, return expectations, investment period, and investment preferences. Please call if you’d like to discuss asset allocation in more detail.