Determine Your Asset Allocation

By: Pete
Date posted: 11.23.2011 (11:03 am) | Write a Comment  (0 Comments)

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When trying to determine what type of portfolio you will end up having, it is important to determine a complete profile

Why Having An Accurate Profile Matters?

In the investment world, there are no perfect portfolios, it simply does not exist. An important factor to consider is that each individual would in theory have a different “ideal” portfolio. Your asset allocation is by far the most important factor that will determine both returns but also risk and volatility. It depends on a lot of different factors that include you, your job, your financial situation, your financial needs, etc.

Why It Matters

Rarely will an investor need to own 100% of stocks or 100% of bonds. The answer usually lies somewhere between the two. You can also add foreign stocks and bonds, risky ones, add ETF’s that focus on income or on capiatal appreciation, add alternative asset classes (commodities, REIT’s, etc). There are almost unlimited possibilities.

What Are Those Factors?

Age: The younger you are, the more risky your portfolio
Your Finances: The richer you are, the more risky your portfolio
Your Financial Needs: The more needs you have, the more risky your portfolio
Your risk tolerance (can you easily live with the idea of losing 20-30 or even 50% of your portfolio’s value over a few weeks) if it means a higher “expected” return?
Objectives: How much of a return do you need to accomplish your financial goals?

Depending on how you will answer those questions, we will be able to better establish what type of asset allocation is the best fit your needs. In a world where we focus on index/passive investing, asset allocation is by far the most important part to decide. There is no right or wrong answer here, the more risk you add, the bigger swings you will have and the better returns over time.

We are working on a quiz to help you determine what type of asset allocation is the best fit for you, be sure to sign up for our newsletter to find out more about it.


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