Asset Allocation
No matter what your financial security goals – a secure retirement, a college education, a new home or car – you have one thing in common with other investors: You need to save a specific amount of money by a certain time in the future.
To invest for any goal and control your risk along the way, one of your most important decisions is how to allocate your assets among different types of investments.
What Is Asset Allocation?
Asset allocation is the process of choosing how much money is placed in different types of investments.
While asset allocation won't eliminate risk, creating a portfolio that includes the right mix of several types of investments may help reduce it. Some studies show that portfolio performance depends more on asset allocation and less on the individual investments selected.
How Does it Work?
The familiar saying, Don't put all your eggs in one basket, speaks to a very important investment strategy called diversification. To diversify means to spread your savings across a variety of different investment types and asset classes to potentially increase your opportunities for success and reduce your portfolio's overall risk.
Possible investments include bonds, fixed annuities, money market funds, CDs and savings accounts. Some of these, such as savings accounts and CDs that meet federal insurance requirements, may offer a fixed rate of return and are insured by an agency of the federal government up to a specified amount. Fixed annuities are backed by the reserves of the issuing company. And others, such as bonds, can be selected according to your preferred risk level.
In order to help you meet your individual needs, you also need to tailor your investments according to personal financial goals, time frame and risk tolerance.
Asset allocation and diversification do not guarantee a profit or protect against loss, but owning a well-diversified portfolio containing a mix of stocks, bonds and cash geared to your personal situation can help you weather changing market conditions and achieve your investment goals.
Interested in receiving more information about asset allocation? Contact a Thrivent Financial representative today.
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