For years, you have heard professionals talk about the importance of "Asset Allocation" in investment planning, but what does that mean and how does it truly relate to you and your money?
Most Americans have made or helped make soup. It is a simple and straightforward process. Once you determine the type of soup you wish to make, you gather your ingredients, clean and cut them to size, measure each ingredient for appropriate volume and, finally, add each ingredient to your cooking pot as indicated in your instructions.
By following this predetermined process (or recipe) you increase your chances of obtaining the specific result you seek (taste).
When designing a portfolio, you start off in a similar fashion.
An investment adviser needs to determine what type of portfolio is going to be designed. (What type of soup?)
Will the portfolio be focused on growth, generating income or minimizing taxes? (The desired taste?)
What is the ultimate desired size of the portfolio? (When and how many people does it need to feed?)
Once these basic answers have been determined, the ingredients for an investment portfolio can start to be gathered (stocks, bonds, real estate, foreign investments, etc.). An adviser will only gather those various types of investments to include in the portfolio that are considered acceptable to use by the client. …