Asset Allocation
The process of dividing your investment between different assets.
Asset allocation is the strategy by which an investor aims to balance their risk and reward by spreading, or ‘diversifying’, their investments across a range of different asset classes and geographical regions. This minimises the likelihood of an individual’s investments all falling in value at the same time – in short, ensuring that the investor does not ‘put all their eggs in one basket’.
What assets can be included in such a strategy?
You may choose to divide your investments between such asset classes as cash, bonds, shares and property. However, diversification will only be successful in minimising your risk if you invest in assets that behave differently from each other.Practical Application Example
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There is no single formula dictating the asset allocation that would best suit your own needs. Nonetheless, an example portfolio for a fictional investor may include such investments as 20% small-cap growth stocks, 30% large-cap value stocks, 10% international stocks, 20% intermediate government bonds, 10% high-yield bonds and 10% in the cash/money market. ”
