Tuesday, July 28, 2009

Top Asset Allocation Tips

As investors who invest in individual dividend stocks, it is even more important that we ensure that our portfolios are structured in a way to ensure that we take on no more risk than possible. The primary way to do this is to build our portfolio a solid and well-defined asset allocation. I did some digging around the web today and came up with a number of asset allocation tips that any investor can use. If you have more, please use the comments section and let us all know.

1. The most important asset allocation decision is your split between equities and fixed income. A good rule of thumb is to hold a percentage equal to your age in fixed income assets.

2. Asset allocation is not a short term strategy. For asset allocation to do its job right you need to let asset allocation do its job. This can take years, but over time the balance between risk and reward should work in your favor (assuming you have a solid asset allocation defined).

3. An asset allocation can be as simple or as complex as you want it to be. You can achieve a solid asset allocation with as few as three asset types (domestic equities, International equities, fixed income) or get more complex by adding in assets such as REITs, emerging markets, or even commodities.

4. Ensure you count the value of your stock holdings from employee share purchase plans and do not let them get too high. All assets should be included in your overall asset allocation.

5. The appropriate asset allocation for you will change over time. Things that can trigger the need to adjust your asset allocation include getting older, a windfall, and your investment goals. Revisit your asset allocation regularily to ensure that it is still relevant for you.

6. Your asset allocation needs to be balanced periodically. Asset classes that are below target need to be brought up and assets that are above target need to be brought down. This can often be achieved by adding more money to your portfolio and allocating as required, as opposed to selling anything.

7. Diversification is not the same as asset allocation. Diversification is about not having all your eggs in one basket. Asset allocation is ensuring you have the right eggs.

That is what I came up with. What other ones do you have?

This article was written by The Dividend Guy. You may email questions or comments to me at info@thedividendguyblog.com.

1 comment:

  1. Try to work in all known and anticipated major expenditures in your asset allocation plan; make it part of your overall budgeting. People who don't are setting themselves up to sell at a major low, and quite possibly at a major loss.


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