What are asset allocation strategies

Do you know how important is asset allocation? Do you know that asset allocation helps the rich people get richer?


What is asset allocation? What are the asset allocation strategies?

Asset allocation simply means to divide your money into the different asset classes.

That means you can have 70% of your money in stock market, 20% in real estate and 10% in bond market. That is one example of asset allocation.

The purpose of asset allocation is to diversify risks. When the stock market does not do well, the bond market is at the peak. If you need immediate cash, you can liquidate your holdings in the bond market.

The problem is in deciding how much money to put into each asset class. The second problem is in deciding what to invest in each asset class.

That is where asset allocation strategies come in.

What are asset allocation strategies?

Asset allocation strategies determine the execution of your investment plan.

You need to know your risk appetite, your cash needs for the near future, and your objective in life.

Your age and family circumstances are two important factors in asset allocation strategies.

If you are young, and single, with no immediate needs for cash, your asset allocation strategies differ from those with young children.

Your asset allocation strategies build on the principle of risk taking for the greatest return. You can afford to lose all the capital to achieve the greatest return since you can easily earn the money back.

In this case, you asset allocation gears towards high risk and high yield asset, such as derivatives and penny stock investment.

If you have a family to support, especially with a few young kids, you cannot take too much risks with your money. You need to pay off the mortgage and save money for the college education of your kids.

Your asset allocation strategies focus on the income security with reasonable rate of returns. In this case, having the bulk of your capital in real estate investment makes sense. You can buy apartments and houses for rental. You can get the rental income, and capital appreciation when you sell the house later.

That will provide adequately for funding your children through college.

Many people who are ten years away from retirement shift their money from stock market investment to bond market and real estate investment.

They do not dare to risk the money in risky derivative products. Their asset allocation strategies focus on capital protection and income security.

Since asset allocation strategies change with a change in our age, family circumstance and other factors, it is important to review the asset allocation strategies and plans every year.