Erickson Financial Solutions Blog
1-minute video: Why is Asset Allocation Important?
Why asset allocation is important to you.
The asset allocation decision is one of the most important investment decisions you will make. And as your life circumstances change, so will the appropriate asset allocation decision be made again.
The asset allocation decision integrate several important factors: your goals, when you need the money, your individual risk tolerance, your age and health are among issues to consider.
One overarching goal is to get the best return for the least amount of risk. Too often people invest based on a past record and total ignore the risk it took to get those returns. Further, past performance of an investment is no indicator to future performance.
But the appropriate allocation can lessen your risk and raise the chances you will have the money you want when you need it. Common, basic allocations will include stocks or stock based investments, bonds or bond based investment and cash. There is no perfect mix as no one knows the future, but through analysis you can develop a “good enough” mix of the assets to be used. And from time-to-time you will need to update the allocation due to personal life changes but also due to factors such as the economy, new laws, financial markets to mention a few.
So, take some time to get educated, assess what is important to you and the money that will take and then put effort into developing the “right” asset allocation for you.