What’s Your Asset Allocation

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Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor’s risk tolerance, goals and investment time frame.

You will often be told to have a portion in Stocks, a portion in Bonds and a portion in Cash or cash equivalents. You will be told this but not really provided any further detail in the types. There are different types of bonds, seven different types actually.

1.) Treasury bonds;
2.) other U.S. government bonds;
3.) investment-grade corporate bonds (high quality);
4.) high-yield corporate bonds (low quality), also known as junk bonds;
5.) foreign bonds;
6.) mortgage-backed bonds; and
7.)municipal bonds.

There are also different types of stocks as well as stock categories.

Types of stocks are:

1.) Common stock. This is well, the stock you buy.                                                                       2.) Preferred stock. This is stock you get while in or a part of a certain company, however, this stock usually doesn’t come with voting rights. Honestly, voting rights doesn’t play much of a part unless you own a fair share of the company you hold stock in.

Stock categories are mainly divided out by size and sector. By size, you will generally hear them referred to as either: Small Cap, Mid-Cap and Large Cap. Large Cap is your more stable companies in the billions of dollars worth of value or trillion as it were for say Amazon at this time. These, again are more stable companies and many but certainly not all, pay our dividends which at times make up for it lack in growth as the latter is the case for Small Cap companies. Small Cap companies are newer companies or companies still early on in their life cycle, at times the end so be sure to understand the value of that company.

Moreso than size, you need to know the category of sectors than you do say the size of the company, however, both are important.

The categories are as follows:

  1. Financials
  2. Utilities
  3. Consumer Discretionaries
  4. Consumer Staples
  5. Energy
  6. Healthcare
  7. Industrials
  8. Technologies
  9. Telecom
  10. Materials
  11. Real Estate

Each category has is benefits and uses within a portfolio. You may utilize only a few inside your own portfolio, or you may utilize them all.

A portfolio is very, very personal. Can you read the seriousness of my voice? Well, it sounded serious in my head. Take it as you will, however, it’s not only personal, it’s strategic as well.

You may hear a very generic saying of having your money in Stocks and Bond. There is a basic computation for how much you should have too. Did you know that? (I don’t agree with it but I will share it with you.) The way most financial gurus advise you on how much stocks versus bonds you should have is based on your age. Weird right? They say to take 100 years and minus your age. So let’s say you are 50 years old right now, they would tell you to subtract 50 from 100 and of course your left with 50. this means you should have 50% of your portfolio in Stocks and 50% in BONDS. Same applies if you are 40 years old. Utilizing the same mathematical principal 60% of your portfolio should be in Stocks and 40% should be in Bonds. There are numerous variations of these Stocks versus Bonds concept. Honestly, I have multiple setups account depending, goal depending and I change it up based off of need and or opportunity.

I would like to provide you with a few portfolio setups. Some go against conventional thinking and some fall in line with it. It may test your feelings on Stocks and Bonds. Hint, Bonds aren’t always safe either.

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About David EvansWood