Balancing your investment choices with a sound asset allocation strategy is paramount to building a successful wealth portfolio. The combination of investments you choose can be as important as your specific investments. The mix of various asset classes, such as stocks, bonds, cash, and alternatives accounts for most of the ups and downs of a portfolio’s returns. But the appropriate mix can also help to protect some of the downs, balance the portfolio, and protect some of the returns.
Each type of investment has specific strengths and weaknesses that enable it to play a specific role in your overall investing strategy. Some investments may be chosen for their growth potential. Others may provide regular income. Still others may offer safety or simply serve as a temporary place to park your money.
Balancing how much of each you should include is one of your most important tasks as an investor. That balance between growth, income, and safety is called your asset allocation, and it can help you manage the level and type of risks you face.
Often when financial professionals refer to asset allocation, they’re usually talking about overall classes: stocks, bonds, and cash or cash alternatives. However, there are others that also can be used to complement the major asset classes once you’ve got those basics covered. They include real estate and alternative investments such as managed futures, hedge funds, private equity, or commodities. Because their returns don’t necessarily correlate closely with returns from major asset classes, they can provide additional diversification and balance in a portfolio.
There are various approaches to developing an asset allocation that makes sense for you. Some investors may try to match market returns with an overall “core” strategy for most of their portfolio. They then put a smaller portion in very targeted investments that may behave very differently from those in the core and provide greater overall diversification. Others may be more comfortable assuming more risk and shift their investments in between asset classes trying to time various market trends.
The professionals at Uhlmann Price Securities can assist you with making these choices and helping you navigate your way to the optimal asset allocation strategy for you.
Terry Finkel | Senior Financial Consultant | (847) 305-2033
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