What Is Asset Allocation?
Asset allocation is an investment strategy used by many savvy investors. The investor builds his portfolio by investing in a range of asset classes; stocks, mutual funds, real estate investments, private equities, investment partnerships and cash equivalents based on his financial goals, investment duration and risk tolerance.
Each asset class is vulnerable to different risk during different stages of an economic cycle; therefore, by investing across several asset classes, the risk exposure of the investor can be lessened.
For example, if the stock market is booming, bond prices typically fall and when stock prices begin to fall, real estate prices are generally more attractive.
An asset allocation model guides the way the investor splits his overall portfolio over the various asset classes. However, the investor has the ability to decide on the details of each asset class. i.e. Within ‘stocks’ alone, the investor can decide ......