LeoGlossary: Asset Allocation
A long term investment strategy whereby a portfolio is consistently rebalanced based upon the previous established parameters of what the asset make up should be. This is often done in investment funds which are required to maintain a certain allocation based upon the fund's goals.
This can be done by mixing different asset classes such as stocks, cash, bonds, commodities, or real estate. We can now also include cryptocurrency in the equation since, for many investors, it is a legitimate asset class.
Rebalancing can often take place on at set intervals. For example, many will adjust their portfolio quarterly. This is done since certain assets might experience bull runs, outpacing the rest of the assets. Rebalancing means selling some of the one asset and buying more of the others to get the allocation back in alignment.
Main factors go into asset allocation. Financial planners have long suggested that the stock to bond ratio should change as one ages. The traditional thinking is that, as one nears retirement, a portfolio heavier in bonds is more appropriate since wealth preservation is the main criteria.
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