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Monday, January 19, 2009

Asset Allocation

Studies have shown that proper asset allocation is more important to long-term returns than specific investment choices. But since guessing which asset category will do best at a certain time is very difficult, it can make sense to divide your investments among asset categories. Understanding this strategy can be key to investment success.

What is Asset Allocation?

Asset allocation means diversifying your money among different types of investment categories, such as stocks, bonds and cash. The goal is to help reduce risk and enhance returns.

This strategy can work because different categories behave differently, Stocks, for instance, offer potential for both growth and income, while bonds typically offer stability and income. The benefits of different asset categories can be combined into a portfolio with a level of risk you find acceptable.

Establishing a well-diversified portfolio may allow you to avoid the risks associated with putting all your eggs in one basket.


Asset allocation plans change with time

While an asset allocation plan eliminates a lot of the day-to-day decisions involved in investing, it doesn't mean you should just "set it and forget it." Reviewing your portfolio regularly with your financial advisor to monitor and rebalance your asset allocation can help make sure you stay on track to meet your goals.

No matter what type of savings programme you choose, it's important to review your portfolio every 6-12 months to assess your progress. Your financial advisor can provide you with expert help in determining the best way to allocate your assets.

source: Franklin Templeton
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