When you created your investment strategy, your asset allocation reflected your goals, time horizon, and tolerance for risk. Over time, however, any of these three factors may have changed, and your portfolio may need adjustments to reflect your new investing priorities.
Diversification
The saying “don’t put all your eggs in one basket” is important in investing. Over time, certain asset classes may perform better than others or may perform much worse than others. If your assets are mostly held in one kind of investment, you could find yourself under a bit of pressure if that asset class experiences volatility.
Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if an investment sees a decline in price.
Asset allocation strategies are used in portfolio management. When financial professionals ask you questions about your goals, time horizon, and tolerance for risk, they are getting a better idea of what asset classes may be appropriate for your situation. Asset allocation is an approach to help manage investment risk by diversifying your investments across different asset classes, or types of investments. It does not eliminate the risk of loss if an investment sees a decline in price.
Determining an Appropriate Mix
Appropriate asset allocation is determined by each individual's situation. Here are three broad factors to consider:
Time
Investors with longer timeframes may be comfortable with investments that offer higher potential returns, but also carry a higher risk. A longer timeframe may allow individuals to ride out the market’s ups and downs. An investor with a shorter timeframe may need to consider market volatility when evaluating various investment choices.
Goals
Goals come in all shapes and sizes. Some are long-term, while others have a shorter time horizon. Knowing your investing goals can help you keep on target.
Risk Tolerance
An investor with higher risk tolerance may be more willing to accept greater market volatility in the pursuit of potential returns. An investor with a lower risk tolerance may be willing to forgo some potential return in favor of investments that attempt to limit price swings.
Have Your Investing Priorities Changed?
If so, this is all the more reason to review and possibly adjust the investment mix in your portfolio. Asset allocation is a critical building block of investment portfolio creation. Having a strong knowledge of the concept may help you when considering which investments are appropriate for your long-term strategy. If you'd like help with finding the right asset allocation to match your goals, risk tolerance, and time horizon, Escient Financial is here to help. Feel free to...
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Digital assets and cryptocurrencies are highly volatile and could present an increased risk to an investors portfolio. The future of digital assets and cryptocurrencies is uncertain and highly speculative and should be considered only by investors willing and able to take on the risk and potentially endure substantial loss. Nothing in this content is to be considered advice to purchase or invest in digital assets or cryptocurrencies.
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