The Writer’s Coin

This topic has been getting more and more press and I think that’s great, since most people don’t give it the importance it deserves. Instead of working on asset allocation and letting the portfolio do it’s thing, people want to constantly tweak and buy and sell and it’s just too hectic a way to live.

What is asset allocation? Basically, it’s how much of each “thing” you have in your portfolio. It’s how you diversify it. For example, I am in my mid twenties and my retirement account is 100% stocks. My allocation is 100% stocks. Is that OK? Some studies reveal that even someone young like myself could change my allocation to 90% stocks and 10% bonds, therefore lowering my risk without lowering my returns. Which is what playing around with allocation does: find a balance between how much risk you’re willing to take and how much you want in returns.

Bonds are stable, less risky. But the returns are lower.

Stocks are riskier, but the returns are higher, especially over the long term, which is what that previous link shows.

Asset allocation is basically you tailoring your investments to fit your personality in terms of risk and reward. And it’s been proven to be almost as important (some would say more important) that the actual investments you choose.

What’s your allocation?

Tags: allocation, bonds, Stocks