Many individuals think that investing is a process of trying to pick that one best stock.? They also will purchase an asset that has been recommended as a ?can?t miss? by a friend or some type of so called expert.? However studies have shown that by using stocks, bonds and other types of investments based on an appropriate asset allocation one can have a better long-term performance.? By utilizing some basic guidelines, asset allocation can be easier and less time consuming than trying to find the next big stock winner.
Establish Your Goals:? This will help you determine how much you will need, when you will need it, and when you should get started.? If your goal is longer term, you have time to balance out your returns with more volatile investments.? This is shown by the up and down swings in assets such as small cap and international stocks.? Shorter term goals are not as well suited for these more volatile assets, as they could drop in value and not recover before needed.
What Is Your Risk Tolerance?:? Risk is inherent in all types of investments.? Even assets like blue chip stocks and US Treasury Notes can have volatility in their values.? If you have a short term goal, it may be best to put your funds in FDIC-insured products.? They currently may not be paying the most attractive rates, but will protect your funds for that short term need.
Riskier assets such as small-cap or emerging markets stock have historically performed well over time, but can have major shifts in value.? As an example, emerging markets in 2008 fell 53% and in 2009 gained 79%.? These types of assets usually need longer term goals to provide you with better returns.
The lesson to be learned here is to link your time frame goal to your risk tolerance, to have a starting point for dividing riskier holdings from less risky ones.? You can look at historical returns for the different types of assets to see where they fit.? It should be remembered that once you arrive at an asset allocation, you may want to make adjustments over time.
What Not To Do:? Don?t follow fads, as very often by the time you hear about them, they have already run their course.? Don?t be satisfied.? After the initial investment is set up, you should review your portfolio regularly.? The more volatile the investments, the more often you should review.
In summary, you need to tailor your investments to your goals, time frame, and risk tolerance.? You should also be aware that over time investments and the economy change, and your investments should regularly be monitored.? Finally, you don?t need to be in this alone, as there are professionals that specialize in financial planning and can provide assistance.
Duane Mertl is a Vice President and Personal Trust Officer of Horizon Bank servicing Northwest Indiana.? For more information on Horizon?s?Trust & Investment services contact Duane Mertl at 219-874-9232 or via email dmertl@accesshorizon.com
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Source: http://blog.accesshorizon.com/2012/11/20/building-an-investment-portfolio-that-works-for-you/
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