Setting Your Investment Goals
Do you want to play it safe? Or are you in a position to be more risky?
Most investors know that with both regular contributions to their investment portfolio and the presumed compound interest of those investments, their portfolio will grow. However, an additional investment strategy equally important to the growth of all investment portfolios as urged by the financial experts, is the application of asset allocation and diversification.
Asset Allocation refers to an investment strategy focused on selecting the appropriate mixture of asset classes such as stocks, bonds, mutual funds, cash, and other investments, to benefit your portfolio. Borrowing from the phrase “Don’t put all your eggs in one basket”, Nerd Wallet columnist Arielle O’Shea explains that the “eggs are [the equivalent of] your money”, and that “baskets are the various asset classes you can choose to invest that money in.” The application of asset allocation to your portfolio will allow you, as the investor, to experience continual growth as diverse markets cycle up and down.
Diversification is the process of varying your securities portfolio within asset classes. For instance, diversification in stocks would mean holding stocks in diverse sectors, such as energy, healthcare, industrial, and so on. In bonds it could mean having a variety of federal, state and municipal bonds. If properly diversified, your portfolio of stocks (and/or bonds) will ordinarily experience ups and downs at different times as various sectors fall in and out of favor with the economy and with investors.
Proper asset allocation and diversification of an investment portfolio should be developed to fit harmoniously with your risk tolerance, time horizon and age. See a prior article, 3 Key Rules for more information on this topic.
If you have difficulty in determining what your asset allocation and diversification should be, visiting with an investment adviser representative may be useful to determining the right mixture of investments for your portfolio.
Before you invest, visit the Kansas Securities Commissioners website at www.ksc.ks.gov or call us at 800.232.9580 to request information from our database of professionals and firms who are licensed to do business in the State of Kansas.
(sample diversification chart made on anychart.com)
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