What is asset allocation? Asset allocation is the way a person divides his or her assets among investment categories. To help to increase your returns and lower the portfolio volatility it is important to go see the constructing a well-planned asset allocation. It is important to note that there are three different classes of assets which include equities fixed income per cash and equivalent. Other assets that are outside the three categories are referred to as real estate commodities at or in other words alternative assets are the other assets that are not within the three classes of assets. The factors that can influence a person in the construction of an asset allocation include personal goals level of risk tolerance and investment horizon.
It is important to consider the following factors that have been highlighted when considering and set a location.
Age is an important factor that you need to consider when considering asset allocation. Considering age is essential because you can consider the percentage of your portfolio in risky assets. A young person can consider the location of a large percentage to risky assets well if they are aged then they are advised to allocate a lower percentage to risky assets. It is important to know that a young person who is able to recover the opportunities and time that the asset may have had setbacks while an elder person will not. Therefore for the aged people, they are recommended to plan their asset allocation so that they are able to preserve their principal amount.
Another factor that you need to consider when considering asset allocation is the risk tolerance . Risk tolerance is whereby an individual is willing to losing a certain amount so that they are able to get a higher return in the future. A way that a person can get a higher return is in investing aggressively in assets when valuations are low. When the risk is in their favor it is a time when you need to invest because you will be a successful value investor. Visit TuringTrader to know more.
Another factor that you need to consider when considering asset allocation is diversification. Diversification can be referred to as a process where your asset is diversified among different categories of investing so that you cannot end up losing the principal amount in one investment category. It is important to note that through diversification you're able to lower your risk.
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