Asset Allocation Planning (资产分配计划)
Asset Allocation Planning (资产分配计划) Asset Allocation Planning (资产分配规划) Selangor, Malaysia, Kuala Lumpur (KL), Klang Consultant, Service | Red House Corporate Services Sdn Bhd
Asset Allocation
Asset allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance, and investment horizon. The three main asset classes - equities, fixed-income, and cash and equivalents - have different levels of risk and return, so each will behave differently over time.

Another words, Asset Allocation refers to diversifying your investments among a variety of different types of assets, it means that you spread your money among different assets, such as equities, fixed-income, and cash equivalents. Each of these responds differently to different trends in the market, so having a blend of them in your portfolio will help you minimize losses in a market downturn and protect you from large losses in your portfolio.

Asset allocation is a key component of any investment strategy. Your portfolio should be diversified, and how your assets are allocated partially determines how diversified you are.
Types of Asset Classes
Each asset class offers different degrees of risk and reward. Here are the three most common asset classes, ranked from least risky to the riskiest:
1. Cash: This is the least risky, but the return is negative once you've taken out the cost of inflation. Money market funds and certificates of deposit are in this category.

2. Bonds: There many types of bonds, but they are all fixed-income investments. Government bonds are always 100% guaranteed by the federal government and offer a slightly higher return than cash. Corporate bonds offer a greater returns higher risk of default.

3. Stocks: These are riskier than bonds because you can lose 100% of your investment. Over time, stocks offer the greatest return and will generally outpace inflation. Within stocks, there are three sub-categories based on how large the capitalization is: small cap, mid cap, and large cap.

There are many other classes that you should also consider:
  • Real estate: This includes the equity in your home, which most financial advisers don't count because you live in it. But the value could deteriorate. You will lose all your investment if you foreclose. It can also skyrocket, forcing you to have too much in this one asset class.

  • Derivatives: These offer the highest risk and returns. Keep in mind you can lose MORE than your investment.

  • Commodities: Risk can vary because there are so many types. However, most investors should own shares of an oil-related mutual fund, as it should rise over the long-term as supplies dwindle.

  • Currencies: As the dollar declines over the long term, it's good to have assets denominated in foreign currencies such as the euro. When the dollar is weak, then the euro is strong. The two mixed economies are the same size, so they compete with each other in the forex market.1

Proper Asset Allocation Is Important
Even billionaire institutional investors lose money on certain bets. But since they are properly hedged, it ensures they will not go down on a single bad investment.

Allocating properly allows for fluctuations in currencies and larger geopolitical moves, giving the investor a safety net against large-scale changes.

Key Takeaways:

  • Asset allocation is the process of spreading your investments over various types of assets to guard against changes in the market.

  • Investors typically allocate some of their investments toward stocks, bonds, and cash equivalents, but there are other asset types to consider as well, including real estate, commodities, and derivatives.

  • The best mix for you depends on your investment goals, time horizon, and risk tolerance.

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