Asset Allocation

What is asset allocation?

One of the mantras of financial planning is proper diversification (“not having all your eggs in one basket”).

Some investment categories, such as cash, will always have low returns, but are low risk. Others, such as equities, are higher risk, and may have low or high returns. (We invest in these with the aim of getting higher returns.)

If all your savings are in low risk categories, it’s unlikely that you will generate the wealth you need to achieve future financial goals.  So we also invest in higher risk/higher return assets that give you more chance of creating the wealth you need.  However having all your savings in the higher return category is very risky, and you could sustain substantial losses if all your savings are allocated to high risk assets.

To avoid undue loss, while still creating wealth, we distribute your savings throughout a mixture of high and low risk assets. That way, you’re covered for unexpected losses, but you have enough high return assets to create reasonable wealth.

Very importantly, asset allocation is not “set and forget.” It should be regularly reviewed, say every 6-12 months, with extra exposure to then undervalued asset sectors and lower exposure to overvalued sectors.

This is the main thrust of the Efficient Frontier investment strategy that Archimedes Financial Planning provides!

Asset allocation is the most important decision made in financial planning! Each person has different needs, so an appropriate asset allocation for one person is not likely to be correct for another person.

Contact us to discuss ways in which we might find your optimal asset allocation profile.

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