Many investors have heard the term “asset allocation” at one time or another. From the first time we sign up for a 401k plan at the office all the way through the conversations we have with financial planners in retirement we are bombarded with messages about the importance of proper asset allocation. But what is asset allocation, and what does it mean to investors saving for the future?
long term investing
Watching the roller coaster ride of the stock market can make many investors queasy. Even though the stock market has, historically, always trended up, investors can’t help but feel uneasy as they watch the values of their portfolios rise and fall with the market. That is, unless they also have a portion of their money in the bond market and the precious metals market, and in short term savings. When portfolios are limited to one type of asset, its value will reflect the volatility of that asset class. But, when portfolios are allocated among several different asset classes, the variable rates of volatility and the uncorrelated movements of each can have the effect of stabilizing the overall portfolio.