Achieving Optimal Asset Allocation: How to Decide Where to Invest Your Money

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By Advertiser, in Personal Finance, Business 20-08-2021 01:00:00 0 Comments

One of the most common questions asked by individuals looking to maximize their wealth is “How do I decide which investments to hold?” Because we are all unique, with specific circumstances and attitudes to risk, there can be no one-size-fits-all approach to holding assets.

What is asset allocation?

Asset allocation simply means spreading your investments over a range of asset types, so that you don’t have all of your wealth in one type of investment. This is necessary to reduce the risks and have the potential for bigger gains. Many individuals will invest in real estate, pensions, and stocks, but there are other options to explore. There are three main types of assets: stocks, fixed income securities, and cash / cash equivalents. Real estate (property), art and commodities are often viewed as alternative assets.

Many people may own too much real estate wealth because they understand investing in bricks and mortar when their knowledge of other assets may be lacking. Putting money on the stock market is often seen as a riskier strategy, but history shows that stocks outperform all other assets. Since 1986, it has taken about 3 years for stocks to regain their previous highs as a result of market-wide price declines.

Asset type – lowest to highest risk

  1. Money market: investments in very liquid short-term assets, usually one year or less. This includes assets such as certificates of deposit (CDs), treasury bills and short-term securities loans. Treasury bills are the most common investment in the money market.
  2. Fixed Income: Highly rated corporate or government bonds that pay the holder a fixed amount of interest. Interest payments are usually made twice a year and the invested capital is returned to the investor at maturity.
  3. National Large Cap Equity: Shares issued by companies with a market capitalization greater than $ 10 billion.
  4. Domestic Mid-Cap Equities: Shares issued by companies with a market capitalization between $ 2 billion and $ 10 billion.
  5. National Small Cap Equities: Shares issued by companies with a market capitalization of less than $ 2 billion.
  6. Foreign Developed Market Securities: Securities issued by a foreign company and listed on a developed market stock exchange.
  7. Emerging markets: Securities issued by companies in developing countries.

How to decide on your asset allocation strategy

Your asset allocation strategy depends on several factors: your investment objectives, the investment schedule and your risk profile. A high growth strategy in your 20s and 30s will likely be replaced by low risk options as retirement approaches, although this will be influenced by your personal attitude to risk and your current circumstances. A common strategy is to invest in major types of assets in a broadly balanced manner, gradually shifting your assets to low risk investments over time.

Common asset allocation strategies

1) Strategic asset allocation
Strategic asset allocation defines the asset mix for a long-term investment period and aims to provide the optimal balance between expected risk and return.

2) Dynamic asset allocation
This strategy constantly adjusts the asset mix as the markets rise and fall. As the economy changes, you sell decreasing assets and buy increasing assets.

3) Tactical asset allocation
Tactical asset allocation is an active strategy that shifts the allocation of a portfolio to assets with the greatest potential for gains to take advantage of strong sectors.

Advice from Blacktower Financial Management

Achieving the right asset allocation is an essential part of managing your investments and requires the ongoing professional input of a wealth management advisor. Our wealth management service provides you with a dedicated advisor to help you plan your financial strategy to achieve your present and future goals. We will work in partnership with you to identify the best mix of investments and regularly review your position to help you get the maximum return on your investment. Contact one of our Lisbon office representatives today for your free, no-obligation discussion.

Black tower in Portugal

Blacktower’s offices in Portugal can help you manage your wealth to your best advantage. For more information, contact your local office.

Antonio Rosa is the associate director of Blacktower in Lisbon, Portugal.

Blacktower Financial Management has been providing specialist and localized wealth management advice in Portugal for 20 years. We can help you with specialists, advice to secure your financial future. Contact us on (+351) 214 648 220 or email us at [email protected]

The information in this document is provided for informational purposes only, is subject to change and should not be relied upon. You should seek advice from a professional advisor before embarking on any financial planning activity.


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