ASSET ALLOCATION: DIVERSIFICATION AND INVESTMENT !

WHAT IS ASSET ALLOCATION?

Like many confusing and threatening personal financial terms, asset allocation is actually a simple concept.


Asset allocation is a method of dividing a portfolio into different investment types. At the most basic level, it means assets such as stocks, bonds and real estate.


For example, let's say a female investor (Isabel) is aiming for his own investment, which consists of 80 percent of shares, 10 percent of bonds, and 10 percent of real estate.


At least for now, this is her target asset allocation. Both her goal and actual asset allocation will change over time (more on later).


She also had some cash in the emergency fund.Emergency funds will not focus on cash reserves here because they are a safety net rather than an investment, but they are still worth mentioning.


ASSET ALLOCATION: DIVERSIFICATION AND INVESTMENT  !


ASSET ALLOCATION PHASE


I think asset allocation is a continuation of the hierarchy. The simplest hierarchy is the asset class.


1. THE ASSET CLASS.


The asset class is the percentage of the portfolio that enters stocks, bonds, and so on.
But it is not enough to say "I want to invest 80% of the money in stock."

There are millions of stocks, mutual funds, and exchange traded funds (ETFs) all over the world,
It is difficult to choose a company or even a mutual fund to balance the "stocks" portion of the portfolio and create a diverse portfolio.

Fortunately, diversification by asset class is easy.


2. ASSET ALLOCATION THROUGH GEOGRAPHICAL SEGMENTATION



The next step in asset allocation is local allocation.To continue the example above, Isabel aims to have 80% of his portfolio in stock, which is evenly split between US stocks and international stocks.

Among international stocks, she divides more of these shares between developed economies (eg Europe and Canada) and emerging markets or developing economies (eg Brazil and UAE).

So, during the equity investment, she aims to 50% of US stocks, 25% of international advanced stocks and 25% of emerging markets.

Isabel does not need to pick and choose individual stocks. Instead, she invests in an ETF that tracks stock indexes in other regions.

She calls one or two ETFs in advanced international stocks, one or two ETFs in emerging markets and calls them one day.
The same principle applies to property classes such as bonds and real estate.

When Isabel invests in rented property, others can buy it from Baltimore and others from Buffalo.

 If her property investment is indirect, she can buy stocks of real estate investment trusts (REITs) investing in US real estate and other companies investing in European real estate.


3. MARKET CAP.


At a more detailed level, investors can invest in stocks with other market capitalisation, shortly "caps".

The Market Map is the total value of the company, which is the share price multiplied by the total number of shares on the market.

Large companies are generally large corporations. SMEs are small and have more room for growth, but are less stable.

Isabel invests in index funds, which track small stocks in US stocks, and index funds, which track intermediate stocks.

How does Isabel describe asset allocation in detail at each layer? In both US and international stocks, she shares more investment based on the market cap.


Note: Asset Allocation Diversification & How your Investment should Changes Over Time .



thanks for the time .

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