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What Is Asset Allocation?
Asset allocation refers to how investors divide their portfolio intodifferent asset classes, such as bonds and stocks.
But there are different types of asset allocation, and different ways for investors to meet these goals.
This is why its important to understand exactly how asset allocation works and why it matters.
Bonds and stocks, for example, are often blended in asset allocations for a number of reasons.
For one thing, bonds are much less volatile than stocks.
Investment Goals
Your investment goals influence both your asset allocation and your specific security selection.
Heres the path you should follow:
1.
Determine Risk Tolerance and Time Horizon
Everyone wants to earn as much money as possible off their investments.
Rebalancing Your Portfolio
Even the most perfectly balanced portfolioneeds rebalancing from time to time.
This is because different asset classes tend to outperform one another over various periods of time.
The well-regarded financial services firm suggests rebalancing a portfolio annually for the best results.
It also serves as agood road mapto keep your investments on track throughout your lifetime.
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