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Home >> Asset Allocation Basics

Asset Allocation Basics

January 24, 2011 by Robert Kulas. Leave a Comment

Do you know the old saying, “don’t put all your eggs in one basket”? If so, then you’ve had your first lesson in asset allocation and diversification.

Asset Allocation and Diversification

When it comes to investing, you have important decisions to make about dividing your investment dollars.

Diversification is deciding to hold more than one type of investment, such as buying stock in several different companies, so you minimize your risk of losing all your money if one of your investments goes bad.

Asset allocation is a diversification strategy that goes one step further. With asset allocation, you don’t just buy a variety of one type of investment, you purchase investments that span several categories. This minimizes your risk of losing it all when one investment fails, plus it helps you meet your financial goals because not only are you balancing risks, you’re also balancing potential rates of return.

Three Categories of Investments

There are three main categories of investments:

  1. Cash: This category includes CD’s, savings accounts, money market accounts, money market funds and treasury bills. Cash and cash-equivalent investments are by far your safest option (many are even federally-guaranteed), but they also bring the lowest rate of return.
  2. Bonds: Bonds tend to occupy the middle ground between cash and stocks. They are generally more stable and less risky than stocks. By the same token, they tend to offer a lower rate of return than stocks.
  3. Stocks: The stock market offers the highest level of risk as well as the highest potential rates of return for any of the three categories of investments. Especially in the short-term, stocks tend to be volatile investment vehicles, and watching your stocks day-to-day can be a bit of a roller coaster ride. As a long-term investment, though, stocks on the whole have historically done well.

Allocating Assets Depends on Your Goals

Selecting a mix of investments depends on your financial goals, the length of time you want to invest before achieving your goals, and your tolerance for risk.

So, if your financial goal is saving for retirement, which is several decades away, you may choose to initially shift the balance of your investment portfolio toward higher-risk stocks, on the theory that you can ride out any volatility in the market in favor of long-term gains. Then, as you get closer to retirement age, you’ll likely want to re-allocate your assets in favor of a heavier mix of bonds, to provide more stability and predictability in your portfolio as you near your goal.

Carefully allocating your assets can help you give you peace of mind as you work toward your financial goals.

Filed Under: Financial Planning Tagged With: financial planning, investing

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"Everyone treated us extremely well.  Robert explained how a trust works and the benefits of having one.  We decided to move forward and complete the process.  He was very kind and knowledgeable.  Julie was also very helpful and very patient with our questions.  We felt very comfortable with this firm handling our affairs.  We would highly recommend this firm to our friends and family."

Janice M
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Robert Kulas and staff made making a will an easy to understand process. They were very knowledgeable and attentive to my wishes. All my documents were provided in an organized binder which will be a great asset to my family. I would definitely recommend them.

Krissy L.
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I have worked with Mr. Kulas & staff before. And they are very professional. I am very satisfied with Mr. Kulas and his staff and give them the highest satisfaction and 5 star rating.

Leo C.
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Mr. Kulas and his staff have been extremely helpful & knowledgeable for the over 3 years we have been associated. They are easy to talk to and explain everything without feeling rushed. Very competent and professional.

Mildred W.
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I have known Robert Kulas for 20 years since I was co-executor for friends who had Mr. Kulas prepare a Trust for them. When I felt I needed a trust also, I came to him. I have always been completed satisfied with his work and that of his charming, competent staff.

Joan C.
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August 25, 2020
    

We began our estate plan process in 2004 (12 years ago) and have been pleased with the periodic reviews we have gone through and when changes have been needed the firm has been thorough and professional in making those changes.

L.G.K.
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