When creating a balanced and diversified portfolio, asset allocation is an important step. Asset allocation is the cornerstone to long-term financial success. By tailoring your portfolio to your risk tolerance and goals, you can achieve your desired results. A diverse portfolio also helps you weather changes in the market and other economic trends. This blog will examine strategies for asset allocation so you can make the most of your investment portfolio.
What is Asset Allocation
Asset allocation is when investments are divided into different asset classes. This can include stocks, bonds, alternative investments and cash. It is used to balance investment portfolios to reduce risk and increase returns. By diversifying your portfolio, it can help balance lower performing assets with ones that are performing well. When allocating assets, you determine the percentage of your portfolio that you want to allocate to each class.
Asset Allocation Factors to Consider
There are several factors to consider when allocating assets. You want to assess your risk tolerance. By examining your ability to withstand changes in the value of your investments, you can determine how much of your portfolio should be dedicated to investments that are high risk and lower risk. You also will want to map out your investment goals. These objectives can include your plans for long-term growth, capital preservation and income generation. By visualizing your goals, you can make choices for asset allocation that align with your objectives. Diversification is another factor to consider as spreading your investments across different classes is key for risk management. When allocating assets, consider your time horizon, which is the amount of time you have to meet your financial goals. This could be for a purchase goal, such as buying a house, or a personal timeline for retirement. For time horizons that are longer term, you may be more open to risk as it would give your portfolio additional time to recover from market downturns.
Implementing and Monitoring Asset Allocation
A personalized asset allocation strategy can help you create a plan that takes into consideration your unique circumstances and objectives. Broadleaf Partners can assist you in the creation of an asset allocation strategy. Our team of wealth management experts can devise a course of action for you that integrates your needs and risk tolerances. We will also help monitor your portfolio and track your asset allocation. The Broadleaf Growth Equity Portfolio (BGEP) and the Broadleaf Strategic Investment Portfolios (STRIPs) are managed portfolios that can fit into your asset allocation strategy. We can combine stocks, bonds and other asset classes for a well-diversified portfolio that will achieve your goals.
Benefits of Asset Allocation
There are multiple benefits of asset allocation. Although risk management is one of the greatest benefits, there are other advantages to diversifying your assets. You increase your chances of more optimal risk-return tradeoffs when you have balance in your asset classes. It can enhance your portfolio performance when you have diversification. Allocating assets even has the potential to outweigh the impacts of individual security selection or market timing. When your portfolio is properly structured, it can strengthen portfolio performance. For short-term goals, you can add bonds or high-yield savings accounts to your asset allocation plan. Asset allocation takes into account market cycles and economic conditions. This is key to capturing opportunities for long-term growth. On the topic of market cycles, asset allocation permits you to adjust your portfolio in response to changing market conditions and economic trends. This flexibility can help you navigate changes in the market and build a resilient portfolio. You can customize your portfolio to your individual preferences, needs, risk tolerance and goals. With this in mind, you can create a portfolio that mirrors your specific situation and priorities.
Start a Conversation with Broadleaf Partners
Asset allocation is an important step in the investment process. By creating a plan for allocation, you can improve your returns, better manage risk, foster long-term growth potential and better adapt to changes in market conditions. Broadleaf Partners can help in planning for asset allocation. Our knowledgeable wealth management advisors will consider your goals to design a personalized asset allocation plan. Contact Broadleaf Partners today to start a conversation.