Asset Allocation
Asset allocation is the process of dividing investment money among three main types of securities — stocks, bonds, and cash (or
very short-term debt).
Most investing experts agree that some form of asset allocation will benefit long-term investors. Spreading your money across
different asset classes has been shown to lower an investor’s overall risk of losing money (though it does not eliminate that risk).
How you divide your investment assets across the three major security classes depends on your financial goals, your investment
time horizon, and your tolerance for investment risk.
How Asset Allocation is Used
When building an investment portfolio, you should set asset-allocation targets. These target percentages will change over time as
you near your investment goal or as your needs change.
Choose your target allocation by honestly assessing how sensitive you are to the risk of losing money in the short term and how
long you have to invest before you need to use the money. Historically, investors who allocate a larger percentage of their portfolio to
stocks (instead of bonds or cash) have generally achieved higher returns over the long run. But they have also incurred greater
investment risk than those who invest most of their assets in more conservative security classes.
There is no quick and easy method of calculating an ideal asset allocation formula. You will probably benefit from talking with a
financial professional like John Reising who specializes in helping people select investments and build investment portfolios
according to their investing goals.
Asset allocation is the process of dividing investment money among three main types of securities — stocks, bonds, and cash (or
very short-term debt).
Most investing experts agree that some form of asset allocation will benefit long-term investors. Spreading your money across
different asset classes has been shown to lower an investor’s overall risk of losing money (though it does not eliminate that risk).
How you divide your investment assets across the three major security classes depends on your financial goals, your investment
time horizon, and your tolerance for investment risk.
How Asset Allocation is Used
When building an investment portfolio, you should set asset-allocation targets. These target percentages will change over time as
you near your investment goal or as your needs change.
Choose your target allocation by honestly assessing how sensitive you are to the risk of losing money in the short term and how
long you have to invest before you need to use the money. Historically, investors who allocate a larger percentage of their portfolio to
stocks (instead of bonds or cash) have generally achieved higher returns over the long run. But they have also incurred greater
investment risk than those who invest most of their assets in more conservative security classes.
There is no quick and easy method of calculating an ideal asset allocation formula. You will probably benefit from talking with a
financial professional like John Reising who specializes in helping people select investments and build investment portfolios
according to their investing goals.
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Asset Allocation
