Business Briefs

Asset Allocation

In past articles, I have reviewed risk and your tolerance for it and different parts of the market place that included bank certificates of deposit, stocks, bonds and other instruments of investing. The last few months I’ve concentrated on estate planning and tax planning.Now that you have the pieces of your plan in place, I will move into the hands on of investing.Asset Allocation-a definition: the process of repositioning assets within a portfolio to maximize return for a given level of riskThis process is usually done using the historical performance of the asset classes within sophisticated mathematical models. Please remember, past performance does not guarantee future returns. An asset allocation strategy represents personal decisions about how much of your portfolio to allocate to various investment categories, such as stocks, bonds, cash and other alternatives.When stock market returns remain above average for an extended period, investors don’t have much interest in asset allocation. Then, the best strategy seems to be to own stocks only. When the market declines, investors start looking at asset allocation. Some of the advantages of an asset allocation strategy include:Providing a disciplined approach to diversification: An asset allocation strategy is another name for diversification, an important strategy for reducing portfolio risk.Encouraging long-term investing: An asset allocation strategy is designed to control your portfolio’s long-term makeup. It should not change based on economic conditions or market fluctuations.Reducing the risk in your portfolio: Investments with higher returns typically have higher risk and more volatility in year-to-year returns. Asset allocation combines more aggressive investments with less aggressive ones. This combination can help reduce your portfolio’s overall risk.Asset allocation seeks to maximize the performance of your investment portfolio using diversification and disciplined investing. However, using an asset allocation methodology does not guarantee greater or more consistent returns or lower risk when diversifying among different asset classesAdjusting your portfolio’s risk over time: Your portfolio’s risk can be adjusted by changing allocations for the different investments you hold. By anticipating changes in your personal situation, you can make those changes gradually.Focusing on the big picture: Staying focused on your asset allocation strategy will help prevent you from investing in assets that won’t help accomplish your goals. Rather than investing in a haphazard manner, it gives you a framework for making investment decisions.The success of an investment plan is not so much the return on investments as it is the behavior of the investor.There is additional information on my Web site under the “Articles” section and the “Investing” sub-section, including the thought process behind Modern Portfolio Investment Theory and why money managers use this as one of their tools.Donnell Services, LLC719-886-3377Registered RepresentativeSecurities America, Inc. & Securities America AdvisorsMember NASD, SIPCFor more information, visit www.alexdonnell1.sarep.comDonnell Services, LLC, Securities America, Inc. and Securities America Adivsors are independent companies.

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