The Advantages of Asset Allocation

An asset allocation strategy represents personal risk management decisions about how much of your portfolio to allocate to various investment categories, such as stocks, bonds, cash, and other alternatives.

When stock market returns remain positive for an extended period, investors don't have much interest in their portfolio’s asset allocation. At the time, the best strategy seems to be to owning solely stocks. But when the market declines, investors start looking at asset allocation. Some of the advantages of an asset allocation strategy include:

• Providing a disciplined approach to diversification. An asset allocation strategy is another name for diversification, an important strategy for reducing portfolio risk.
• Encouraging long-term investing. An asset allocation strategy is designed to control your portfolio's exposure to each asset class. It should not change based on economic conditions, political races, or market fluctuations.
• Reducing the risk in your portfolio. Investments with higher expected returns typically have higher risk and more volatility. Asset allocation combines various aggressive and less aggressive investment options. This combination can help reduce your portfolio's overall risk.
• Adjusting your portfolio's risk over time. Your portfolio's risk can be adjusted by changing allocation percentages for the different investments you hold. By anticipating changes in your personal situation, you can make those changes gradually.
• Focusing on the big picture. Staying focused on your asset allocation strategy will help prevent you from making rash decisions with your portfolio. Rather than investing in a haphazard manner, it gives you a framework for how your portfolio should be allocated to meet your investment goals.

If you have questions about your portfolio’s asset allocation, contact your advisor today.

The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the ¬purpose of ¬avoiding any ¬federal tax penalties. You are encouraged to seek advice from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the ¬purchase or sale of any security. This material was written and prepared by Checkpoint Marketing.