Why is Asset Allocation Important to Investing?

Why is Asset Allocation Important to Investing?


To keep your investment portfolio on target
for financial goals, you want to balance risk and diversify your assets. That’s the purpose of asset allocation – the
process of dividing your portfolio among major categories like cash, stocks and bonds. Historically, the returns of these three major
asset categories have not moved up and down at the same time – so including a mix of these
assets in your portfolio can protect against losses. There is no perfect formula for asset allocation
– it differs with each individual depending on their risk tolerance and time horizon. Risk tolerance is the amount of your investment
you’re willing, or able, to lose in exchange for greater possible returns. Risk tolerance is closely tied to time horizon,
or the amount of time you have to invest. An investor saving to make a down payment
on a home in 5 years might choose less risky investments than someone saving for retirement
in 20 years. A longer time horizon allows more time to
recover from loss. Asset allocation may be one of the most important
investment decisions you make with your portfolio – call us today to learn more.

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