Only for investors ... and for speculators who need to invest their profits.
Lesson One: Asset Allocation is an Investment Planning Tool, not an Investment Strategy ... few investment professionals understand the distinction, because most think that Investment Planning and Financial Planning are the same. Financial Planning is a wider concept, and that such non-investment considerations Wills and Estates, insurance, budgeting, Trusts implies, etc. Investment Planning takes place within the Trusts, Donations, IRAs, and other Brokerage Accounts arising as a result of, or without, Financial Planning.
Lesson Two: Asset Allocation is a planning tool that allows the asset (you, if you have not rented a) to structure in a way most likely to achieve the objectives of each specific investment portfolio and the investment portfolio as a whole. Asset Allocation is the process of planning how a portfolio should be divided between the two basic classes (and only these two classes) of investment securities: Equity and Fixed Income. Security sub-classes have little relevance.
Lesson Three: Shares are the riskier of the two classes of securities, but not because of the price fluctuations that their fundamental trait. They are riskier because they represent ownership in a business venture that might fail. The risk of capital loss can be moderated or minimized in the security selection process and a management control activity called diversification. The primary purpose of buying shares is to sell for capital gains, not to save as to brag about in chat rooms. Trophies they they They are less risky than other non-fixed income efforts.
Fixed income securities are less risky because they represent the debt of the issuing entity, and owners have a claim on the assets of the issuer that is superior to that of shareholders and their drooling class action lawyers. With proper selection and diversification, the risk of capital loss is negligible and price fluctuations can be ignored, except the trade opportunities that they provide. The primary goal of these effects is to generate income, either for current consumption or for use later in life. Gains here should be taken ... and boasted in chat rooms!
Lesson Four: An Asset Allocation Formula is a long-range, semi-permanent, planning decision absolutely nothing to do with market timing or covering of any kind has. It is designed to provide a combination of capital growth and income that will achieve the long-distance personal (to pay bills) to produce. Goals of the individual So it should not be tampered with because expectations about something, or arbitrarily reassessed because of the natural changes in the market value of an asset class or the other. Thus, an asset allocation fund is an oxymoron.
Lesson five: Asset Allocation is the only proven cure for inflation. If this is managed using "The Working Capital Model", well, it will almost certainly increase the level of income portfolio by more than inflation, which is a measure of the purchasing power of the dollar, not the dollar value of your securities purchased. Six figures portfolios allocated 100% of Shares are not nearly as inflation proof as those who are more in balance ... see Les Six.
Lesson Six: In addition to the possibilities of not keep up with inflation using an Equity Only asset allocation, regardless of your age, greed management is much more of a problem. In a rising market, according to more profit taking opportunities than lower priced bargains, investors tend to positions in lower quality issues, current story stocks, newer issues, etc. to take .. just to be there. A 30% or so Fixed Income allocation can be an important consideration factor. How's that for throwing cold water on an old Wall Street maxim.
Lesson Seven: These are just some of the lessons that can be learned about asset allocation.
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