Investments: What is asset allocation?
Monday, 23 December 2019
Investors often spread their resources over various types of investments such as stocks, bonds, cash accounts and mutual funds.
Rather than picking each investment on its own, thoughtful investors tend to look at their holdings as a whole, building portfolios that match their personal goals, life stage, time frame and tolerance for financial risk known as asset allocation.
With asset allocation, investors decide on the mix of assets that suits them best, dividing their funds among different investment classifications based on their needs and circumstances.
A young investor saving for a distant retirement — one who can tolerate major market swings , typically known as an aggressive investor— might allocate 80 percent of her portfolio to stocks or stock funds, 15 percent to bonds or bond funds, and 5 percent to cash accounts.
A more cautious investor nearing retirement, looking to preserve capital and earn steady income from his holdings, or a conservative investor, might allocate 50 percent of his wealth to stocks, 30 percent to fixed-income investments such as bonds or bond ETFs, and 20 percent to cash.
As investors' assets gain or lose value, or their lives change, they may need to rebalance their portfolios, buying and selling certain holdings to keep the desired blend.
One long-time rule of thumb held that your stock holdings should equal 100 minus your age — a 30-year-old would invest 70 percent of his money in stocks or stock funds under this rule, for instance — but many experts now view this approach as out of date and too simplistic.
Some propose a different guideline, like 125 minus the investor's age. Others suggest investors rebalance their portfolios to keep their goals in sight as the market changes, rather than sticking to age-based methods that might not yield the best returns.
BBVA Investments, a division of BBVA Securities Inc., can help you find the allocation that suits your needs. Depending on your financial goals your financial advisor will work with you to identify your risk tolerance, keeping your financial goals in mind.
Get in touch with BBVA Investments to talk with a member of our team.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
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