Never Put All Your Eggs in One Basket
This little mantra may be the most important one to keep in mind for all of your investments. By investing in a variety of products you will be protected in the event that something drastic happens in one or two specific areas. As tempting as it may be to load up heavily on certain hot sectors, it is not a wise move. Likewise, even investments that are perceived to be almost without risks, such as bonds, have been known historically to be susceptible to downturns. The only way to be almost totally secure is put your money into a money market account but the disadvantage of this is the very low returns. So what should the wise investor do? The best move is to put a few of those eggs in a number of different baskets. But the trick to that is finding the right mix to suit your financial goals.
Before you can even begin to analyze asset allocation, it is essential that you be aware of just what you may already have invested. If you began investing in mutual funds, it will be beneficial to dig deep under the umbrella of funds to see where exactly your money is going. It may be wise to consult with a professional to get the real information you need.
The next thing to consider when determining where to allocate your assets, is to decide how long you have to reach your goals. Those with a longer time frame can survive through more ups and downs than a person who has only a few short years to see return on investment. For example, a good mix for someone with 15 years to invest may be wise to split their investments into 50, 40, 10 split with 50% in stocks, 40% in bonds and 10% in a money market account. Someone with longer time to invest may choose to increase their stocks and bonds to 70 or 80%.
New asset allocation software can also be helpful when trying to determine the best way to divide up your assets. These programs can certainly help with the number side of the business, but keep in mind that much of investing is also based on feeling, conjecture and opinion that can’t be found in any computer program. Your own personal risk tolerance, your investment personality and other factors such as age, needs and goals must also be taken into account.
Finding the right mix for your specific needs can be a daunting task, and one that many leave up to the experts. Someone with experience in the field will be better able to read the markets and adjust your investments accordingly. In the end, this should mean a steadier, smoother, and more secure journey for you as you travel through the investment maze.
