Asset Allocation
Asset allocation is an investment strategy that involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The process of asset allocation involves determining the percentage of each asset class to include in the portfolio, as well as the types of investments within each asset class. The goal of asset allocation is to create a portfolio that is diversified and has a risk/return profile that is suitable for the investor’s goals and risk tolerance.
History of Asset Allocation
Asset allocation has been around since the 1950s, when Harry Markowitz developed the modern portfolio theory. Markowitz’s theory states that investors should diversify their portfolios to reduce risk and maximize returns. Since then, asset allocation has become an important part of investing, as it helps investors to create a portfolio that is tailored to their individual needs and goals.
Comparison of Asset Allocation Strategies
| Strategy | Stocks | Bonds | Cash |
|---|---|---|---|
| Conservative | 20% | 60% | 20% |
| Moderate | 40% | 40% | 20% |
| Aggressive | 60% | 20% | 20% |
Summary
Asset allocation is an important part of investing, as it helps investors to create a portfolio that is tailored to their individual needs and goals. There are different asset allocation strategies, such as conservative, moderate, and aggressive, which involve different percentages of stocks, bonds, and cash. For more information on asset allocation, investors can visit websites such as Investopedia, The Balance, and Morningstar.
See Also
- Modern Portfolio Theory
- Diversification
- Risk Tolerance
- Investment Strategy
- Portfolio Management
- Risk/Return Profile
- Asset Classes
- Investment Goals
- Portfolio Rebalancing
- Financial Planning
