Have you ever heard of asset allocation before' If you haven't you might want to give it some serious consideration. It could be the way to making more money from your investments than you would if you neglected to use this method of investment.
So what is asset allocation all about' Well, as the name would suggest it concerns spreading your assets between different investment vehicles, in order to make the most from them. For example if you kept all your assets in a low interest savings account you wouldn't make much money after one year had passed.
But if you thought about diversifying and allocating your assets between three or four different vehicles, you could make a lot more money from them. You might choose a safe investment such as that savings account, and then diversify into stocks, shares and mutual funds as well. These carry slightly more risk of course, but this is one of the features that work well with asset allocation.
The idea is that because you are spreading the risk you can afford to take on slightly more of it. If you want to invest your money in shares you would be better investing it across ten different types of shares rather than sinking it all into the same company. If you did this and the company went under, your money would go with it. But if you invested in nine other companies as well as that one, you would only have lost 10% of your total investment. And hopefully the increases received from the others would have softened the blow still further as well.
It is important to consider asset allocation carefully before investing your money in this way. There are plenty of investment vehicles around and some of them carry more risk than others. Higher risk vehicles also carry the promise of higher rewards if they pay off though, so you need to achieve a good balance of investments in order to make sure you can get a better return. It will also ensure you cover yourself in case of mishaps like the one with the stocks.
So take a look at your own financial situation now. Do you have any asset allocation going on at all, or have you already managed to spread your assets over more than one area' If you haven't, why not consider doing so now?
So what is asset allocation all about' Well, as the name would suggest it concerns spreading your assets between different investment vehicles, in order to make the most from them. For example if you kept all your assets in a low interest savings account you wouldn't make much money after one year had passed.
But if you thought about diversifying and allocating your assets between three or four different vehicles, you could make a lot more money from them. You might choose a safe investment such as that savings account, and then diversify into stocks, shares and mutual funds as well. These carry slightly more risk of course, but this is one of the features that work well with asset allocation.
The idea is that because you are spreading the risk you can afford to take on slightly more of it. If you want to invest your money in shares you would be better investing it across ten different types of shares rather than sinking it all into the same company. If you did this and the company went under, your money would go with it. But if you invested in nine other companies as well as that one, you would only have lost 10% of your total investment. And hopefully the increases received from the others would have softened the blow still further as well.
It is important to consider asset allocation carefully before investing your money in this way. There are plenty of investment vehicles around and some of them carry more risk than others. Higher risk vehicles also carry the promise of higher rewards if they pay off though, so you need to achieve a good balance of investments in order to make sure you can get a better return. It will also ensure you cover yourself in case of mishaps like the one with the stocks.
So take a look at your own financial situation now. Do you have any asset allocation going on at all, or have you already managed to spread your assets over more than one area' If you haven't, why not consider doing so now?
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