You’ve heard the saying, “the greater the risk, the greater the reward,” but can you construct an investment portfolio that gets a better rate of return without taking an undue amount of risk?
One of the keys to successful investing is asset allocation.
Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. Determining which mix of assets to hold in your portfolio is a very personal one. Before you make any investment, you should know the investment risks and make sure the risks are appropriate for you. The asset allocation that works best at any given point in your life will depend largely on your time horizon and your ability to tolerate risk.
Your time horizon is the expected number of months, years, or decades you will be investing to achieve a particular financial goal. If you have a longer time horizon, you may feel more comfortable taking on a more volatile investment; you can wait out the inevitable ups and downs of our markets. By contrast, if you are saving for a teenager’s college education you would likely take on less risk because of the shorter time horizon.
Stocks, bonds, and cash are the most common asset categories. By including categories with investment returns that move up and down under different market conditions within a portfolio, you can protect against significant losses. Historically, the returns of the three major asset categories have not moved up and down at the same time.
By investing in more than one asset category, you’ll reduce the risk that you’ll lose money and your portfolio’s overall investment returns will have a smoother ride.
Diversifying your Investments
The practice of spreading money among different investments to reduce risk is known as diversification. By picking the right group of investments, you may be able to limit your losses and reduce the fluctuations of investment returns without sacrificing much gain.
Some financial experts believe that determining your asset allocation is the most important decision that you’ll make with respect to your investments - that it’s even more important than the individual investments you buy.
Innovation Wealth can help
Consider asking a financial professional to help you determine your initial asset allocation and suggest ongoing adjustments for you. Feel great about your risk, rewards, and your future.
Mutual funds are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Avisio Wealth Inc.