Asset allocation is somewhat a tricky phrase that could just mean being able to divide all your investment into different categories so that you will be able to protect the portfolio from any such wild swings.
It is referred to as a process of diversification the risky investments into a suitable portfolio in order to tolerate individual investors.
The process of diversifying potentially risky investments into a portfolio suitable for risk tolerance of individual investors. It is known to be an investing equivalent to the known adage of not putting all the eggs in just one basket. Some experts also believe that the most important factor when it comes to a successful investment is nothing but investment allocation
Asset allocation could be based on a simple idea that in a period of different years, many different assets could be performing best. The foundation of an asset allocation lies in the MPT which otherwise stands for Modern Portfolio. This theory is known to be a formal way of being able to quantify any sort of risk in a particular asset. It also helps in providing a tool for being able to determine as to what is best when combining the assets into much more diversified portfolios that could carry less amount of risk. Asset allocation tries to unite this analysis of quantitative basis combining both risk and goal tolerance of a person who invests in order to make the investment portfolio.
When one happens to discuss details about asset allocation with someone who plans finances, following are the type of investments that are considered
* Stocks : value
* Real estate
* Foreign currency
* Natural resources
* Precious metals
* Luxury collectibles which could include fine wine, art or even luxurious automobiles
* International investments
* Life settlements
Of these, the safest are the government bonds, the one that is considered most risky is the high-growth stocks which could go down to even zero. The others normally range somewhere in-between purely depending on the condition of the economy.
As a rule, the assumption of asset allocation is that as soon as the investor requires access to funds, it is less risky when it comes to the investments. One other important point is to consider the amount of time it would take to be able to recoup the loses that an investor could take.