|
•
It's Part of Putting You First
•
Asset Allocation Means Service |
Studies have found that, over the long run, how your investments are
allocated is more important than individual investments, in determining
overall performance for diversified portfolios.
That’s right. It’s not necessarily the specific investments
you choose, but how those investments are allocated that may make
the difference in reaching your financial goals.
Furthermore, the process of selecting an appropriate investment mix
encourages you to organize your investments and consider your financial
needs and risk tolerance, as well as external factors such as inflation,
taxes, interest rates and the current economy.
Asset Allocation Versus Diversification
On the surface, asset allocation may sound very similar to diversification.
Indeed, the principles are closely related; both are designed to reduce
risk in your portfolio.
At its most basic, diversification means spreading money among several
different investments.
By diversifying into a variety of alternatives, you can mitigate the
chances of suffering a catastrophic loss should one of the investments
perform poorly.
Asset allocation takes this principle one step further by diversifying
your portfolio not just among different investments, but among different
investment classes: stocks, fixed income alternatives such as bonds,
cash equivalents, and real estate and other tangible assets.
Every investment involves some level of risk. Even CDs – traditionally
considered “secure” because, unlike other investment securities,
they offer a fixed rate of return and are insured – carry the
risk that the rate of return received may not be enough to outpace
inflation and taxes. Given that some degree of investment risk is
unavoidable, your goal should be to maintain, and ultimately increase,
your investment returns while managing the risks.
Asset allocation does not eliminate risk, but it can reduce your exposure
to extreme highs and lows in performance. Effective asset allocation
can potentially help preserve
capital, increase liquidity and decrease portfolio volatility. Diversification
and asset allocation do not guarantee a profit or protect against
a loss.
|
|
|
_r1_c1_r5_c15.jpg){kind=small}
_r1_c1_r8_c15.jpg){kind=small}