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Asset allocation: The key to building a solid investment portfolio

by , 02 September 2015

If you want to start investing or already have started buying different stocks and bonds, you want to ensure the best chance of success so you can grow your wealth over the long-term.

Picking winning stocks isn't as important as you may think it is.

One factor that's vitally important is asset allocation. In other words, how you spread your money across different asset classes.

So how does this work? And how should you spread your capital when investing?

Read on to find out more…

Applying asset allocation to your portfolio

Asset allocation is a vital aspect to long-term investing success. Even if you invest in a handful of big winner stocks, you need to ensure you get the balance right amongst different investments.

Asset allocation gives your portfolio the best chance at long-term wealth building, Dr Steve Sjuggerud and Brett Eversole explain in Daily Wealth.

Asset allocation is very personal. It depends on your investment goals and attitude to risk.

As a rough guide, here’s how you should split your capital across different assets…

  • Hold between 10% and 45% in cash;
  • Hold between 25% and 70% in stocks;
  • Hold between 10% and 50% in fixed income, such as bonds;
  • Hold between 1% and 15% in chaos hedges, such as gold.

How to make asset allocation work for you

By using this guide, you can decide on the asset allocation that’s best for you. And by doing so, you’ll have a diversified portfolio to show for it. A portfolio that carries less risk.

For instance, if you’re younger and want to take on more risk, hold more of your portfolio in stocks. This increases your chances of maker higher gains, but with higher risk.

If you’re older or a very conservative investor, hold more in fixed income investments and cash with a small portion in stocks. This has the potential to still perform, but with lower risk.

So there you have it. Asset allocation, the key to building a solid portfolio.

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Asset allocation: The key to building a solid investment portfolio
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