What is Asset Allocation?

Allocating assets within your retirement account sounds more confusing than it really is. Asset allocation is more than just having stocks and bonds in your portfolio. Just think about your portfolio divided into a combination of various types of assets and classes that display what your investment goals are as well as what you can risk or are willing to risk.

Of importance is to have assets in your portfolio that do not move in the same direction at the same time. This is what is referred to as a balancing of your portfolio. Ultimately, if some assets take a downturn, others will be moving upward; thus, reducing the risk of loss to your portfolio.
Asset allocation is the most important decision you as an investor needs to make.

Simply put…where are you going to put your money?

Asset Allocation for Investors

There are different approaches an investor can take as a strategy to balance their portfolio. Some types of asset allocation models are strategic, constant, tactical, dynamic etc. Each has a different weighted approach to investing avenues but with research you can sure find one that works for your retirement account.

The asset allocation strategy that will work for you as the investor will depend on your personal investment strategies, age, type of investments held and more.

Some of the more common asset holdings for portfolios are traditional assets and alternative assets.

Traditional Assets are:

Stocks (dividend, value, sector specific type, small cap, large cap etc.)
Bonds (short-term, long-term, government etc.)
Cash (savings account, money market funds etc.)
Alternative Assets are:
Commodities (precious metals, energy, agriculture etc.)
Real Estate (commercial or residential)
Insurance Products (settlements, annuity, life etc.)
Collectibles (coin collections, stamp collections, car collections etc.)

History has shown that investors who allocated some of their retirement fund in precious metals has given the account proper diversification, stability and the ability to properly maintain their risk that most retirement accounts need. Since gold and silver as well as other precious metals usually move in the opposite direction of the more regularly held types of investment choices. In case of a stock market crash or a steep decline in stocks and bonds, backing your retirement fund with some type of gold or silver provides a safety net for your funds preventing a complete loss of your monies.

No matter how an investor is allocating their assets, there should always be some type of diversification. This will decrease the risk of losing quite a bit of money at once. Remember, the less diversified a portfolio is, the greater the portfolio volatility once there is a falloff in one asset the greater the decrease in your portfolio.