When it comes to investing, choosing your asset allocation is one of the most important investing decisions you can make.
In a nutshell, an asset allocation strategy involves tactically distributing your wealth amongst stocks, bonds, hard assets, and other investment vehicles. It involves deciding how heavily your portfolio tilts towards each type of investment, and in turn, it dramatically affects both your risk and returns.
While there’s a plethora of advice on picking the best asset allocation strategy, you’re bound to find differing – sometimes even conflicting – tips out there.
So, how do you actually pick the best asset allocation?
While it’s probably not the answer you were hoping for, the truth is that there isn’t a one-size-fits-all solution for asset allocation. The perfect asset allocation for you is as unique as the rest of your financial life. It relies on a variety of personal factors, including your time horizon, goals, and appetite for risk – and it simply can’t be properly determined with a plug and play formula.
How to find a successful asset allocation strategy
Just because there isn’t a magic formula for asset allocation, it doesn’t mean you have to resort to guesswork. By narrowing down your unique investing goals and needs, you can hone in on a strategic asset allocation strategy that works for you.
One of the most important considerations is your time frame for investing. Successful long-term investing involves riding out the temporary ups and downs of the stock market over years, or even decades. So the time frame in which you need to use your investments will determine your weight towards more volatile assets, like stocks. For instance, someone who is near retirement (and needs to withdraw from their portfolio in the near future) will often shift their allocation to be less weighted in stocks.
A successful asset allocation also relies heavily on determining your risk appetite. After all – just like a diet – a well-laid out investment plan is only successful if you can stick to it. The perfect asset allocation takes into mind your willingness to ride out volatility and short-term risk for long-term success.
Utilizing a trusted financial advisor
Don’t discount the value a trusted financial advisor can bring to the table when it comes to determining your asset allocation. At LexION Capital, we help clients craft portfolios based on the unique components of their financial life. As a client, you get to pre-experience your portfolio through various asset allocations, using our sophisticated wealth forecasting tools. If you’d like to learn more, don’t hesitate to contact us today.