Some people attribute investing success to choosing the hottest stocks or timing the market correctly. But, in reality, the success of your investment usually depends on the quality of your asset allocation.
What Is Asset Allocation?
Put simply; asset allocation means that you invest your money in different categories of financial instruments, like stocks, bonds, or money market funds. By diversifying your assets, you ensure that you won’t lose all your money if one type of investment turns sour. A good asset allocation plan will help you reach your long-term wealth goals while staying within your capacity for risk.
Asset Allocation As Part of Your Personal Financial Planning
Asset allocation means that your financial plan will not outperform the prime assets in any year. However, since a properly diversified portfolio spreads risk among different asset classes, your overall portfolio will tend to grow, even if individual assets decrease in value.
So, asset allocation is a long-term strategy whose merit lies in being secure enough to give your investments time to grow over a period of many years.
For the vast majority of people, the answer is yes. Just like you wouldn’t represent yourself in court, or allow yourself to be operated on by a non-qualified surgeon, you shouldn’t tackle your investments without the help of a qualified professional.
Diversifying your portfolio isn't the easiest thing to do. There are large-cap stocks, small-cap stocks, growth stocks, municipal bonds, corporate bonds, government bonds, foreign stock, foreign bonds, as well as numerous other financial instruments that go into a diversified portfolio. Additionally, the balance of each of these in your portfolio depends on a thorough and technical market analysis that is often impossible for the layman to perform.
How Investment Plans Fit Into Your Wealth Management Strategy
Investment plans are only one small part of your total wealth management strategy. Real estate, insurance, retail banking, and regular day-to-day financial planning are other aspects that your strategy will have to take into account. Hiring a wealth manager, who can coordinate all the different processes under one roof, will help make sure your financial plan is efficient and propelling you towards your wealth goals in the best possible way.
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Material discussed is meant for general illustration and/or informational purposes only, and it is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. Diversification and asset allocation strategies do not assure