Asset allocation is the process of deciding how to allocate your investment dollars among multiple asset classes.
Stocks, bonds and cash or cash alternatives are the most common components of an asset allocation strategy. However, others may also be available and appropriate.
The overall goal is to minimize volatility while maximizing return (although asset allocation alone cannot ensure a profit or eliminate the risk of loss). The process involves allocating your investment dollars among asset classes that do not all respond to the same market forces in the same way at the same time. Although there are no guarantees, ideally if your investments in one category are performing poorly, you will have assets in another category that are performing well. Any gains in the latter can offset losses in the former, minimizing the overall effect on your portfolio. Remember that any investment involves risk, including the possible loss of capital, and there is no guarantee that any investment strategy will be successful.
The number of asset classes you select for your portfolio and the percentage of portfolio dollars you allocate to each class will depend, in large part, on the size of your portfolio, your risk tolerance, your investment objectives and your time horizon (i.e., how long you plan to keep your money invested). A simple portfolio can include as few as three investment categories, with a percentage of total dollars divided between, for example, cash alternatives, bonds, and stocks. A more complex portfolio may include many more asset classes or break each of the broader asset classes down into sub-categories (for example, the “equities” category may be broken down into sub-categories such as large cap stocks , small cap stocks, international stocks, large cap stocks). technological stocks, etc.).
Determining an appropriate asset allocation may be the most important investment decision you can make, as it will likely have more impact on your overall return than selecting individual investments. Do not hesitate to ask for expert help if you need it. And be sure to periodically review your portfolio to ensure that the mix of investments you have chosen continues to meet your investment needs as your circumstances change over time.
Zeiser Wealth Management, LLC provided this article. To learn more about ZWM, visit www.zeiserwealth.com. The material was prepared by Broadridge-Forefield. Investment advisory services offered by Zeiser Wealth Management LLC, a registered investment advisor in the State of Arkansas.