Welcome back to the bullhunter blog. This entry continues our series on Asset Allocation, and introduces an all new way to ensure that your investment portfolio consists of diverse investments from a broad range of categories and industries.
By having a balanced assortment of investments, you’re safeguarding yourself against unforeseen losses in the future, and working to make sure that you always have a safety net in case things take a negative turn.
As you know by now, a properly allocated portfolio consists of both long and short term investments. In other words, it has a nice mix of long term “safe” investments such as bonds and mutual funds next to an assortment of short term high risks investments such as “hot stocks”. But how do you decide just what that mixture should be?
What Is A Properly Allocated Portfolio
First of all, there is a “magic formula” that some analysts offer: subtract your age from 100. The number you end up with is the percentage of your money that should be put into long term investments, whereas your age represents the percentage of your money that should put into short term investments.
But beyond that, we recommend taking a hard look at your actual goals in life. Most likely, your goals are a mix of long and short term investments, just like your portfolio should be. Therefore, for each goal you have, it should be backed up by a certain fraction of the investments in your portfolio.
After all, if your goals are largely long term, you don’t need to worry very much about short term fluctuations and can continue to try your hand at risky investments.
However, if you need money in the next few years for some short term goals, it might pay to reallocate your assets such that more of them are situated in the “safe” types of investments.
See you next week for part 5 of Asset Allocation.
Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 – 2009
{ 3 comments… read them below or add one }
Hi Sean
I would be interested in finding more about becoming a sharelord.
Tanny
Hi Sean,
I like it when there’s a magic formula. It’s not a one size fits all though as you do need to take into account your own personal goals. I really think that asset allocation is an individual thing.
I think this is why I’d really want a financial adviser that I could trust to help me make these decisions.
I think it helps to do some courses in personal finance so you can become your own best judge of what you need.
There are some great online courses you can do if you can’t get to seminars. The most important thing is that you take action.