Investor Education
Asset Allocation
Asset Allocation It's easy to get caught up in the day-to-day headlines about what's happening in the stock market. And where the "experts" say stocks are headed. 24/7 financial news offers investors benefits. But it's a drawback when investors become confused or lose perspective. Investment success requires discipline and a willingness to focus on long-term objectives. It's important to keep the big picture in mind.
At H&R Block Financial Advisors, we believe that asset allocation is critical for building a successful investment strategy for most people. In simple terms, it involves spreading your assets among several different investment options. Asset allocation can help you minimize risk in your portfolio when market conditions are uncertain. And it may increase your long-term potential for returns. We can help you understand how asset allocation may increase your ability to reach your goals. Your financial success is our business.
At H&R Block Financial Advisors, we believe that asset allocation is critical for building a successful investment strategy for most people. In simple terms, it involves spreading your assets among several different investment options. Asset allocation can help you minimize risk in your portfolio when market conditions are uncertain. And it may increase your long-term potential for returns. We can help you understand how asset allocation may increase your ability to reach your goals. Your financial success is our business.
What is asset allocation?
It is an investment strategy that seeks to balance risk and reward in your portfolio by spreading your investment dollars across several different types of investments for potential financial gain.
Source: SunGard/Frontier
A well-balanced portfolio is the key to achieving your investment goals. Studies show that 93.6 percent of a portfolio's performance is determined by asset allocation.
Source: Brinson, Hood and Beebower Financial Analyst Journal, January/February 1995
Source: Brinson, Hood and Beebower Financial Analyst Journal, January/February 1995
What investment strategy is right for you?
A personalized strategy may help you weather all kinds of market conditions and keep you on track to meet your financial goals. The charts above illustrate a variety of sample portfolios. Compare risks and returns for each option. Then, consider questions like these when talking to your financial advisor:
- What are your financial goals? Are they long-term or short-term?
- Are you seeking growth or income?
- When will you need the money?
- How much risk can you accept?
- What are the tax implications?
Source: Lipper. Stock investments are represented by equal investments in the Russell 1000, Russell 2000 and MSCI EAFE Indexes, representing large U.S. stocks, small U.S. stocks and foreign stocks, respectively. Russell 1000 Index measures the performance of the largest companies in the Russell 3000 Index. Russell 2000 Index measures the performance of the 2000 smallest companies in the Russell 3000 Index. Bonds are represented by the Lehman Brothers Aggregate Bond Index. Lehman Brothers Aggregate Bond Index is made up of a representative list of government, corporate, asset-backed and mortgage-backed securities. Cash is represented by U.S. Treasury Bills. These indexes are unmanaged and you may not make an investment in these indexes. Past performance is no guarantee for future returns.
Things to Keep in Mind:
- Asset allocation is the way in which you spread your investment portfolio among different asset classes, such as stocks and stock mutual funds, bonds, and bond mutual funds.
- When prices of different types of assets do not move in tandem, combining these investments in a portfolio can help reduce the variability of returns, commonly referred to as "market risk."
- Mutual funds are pools of securities, usually offering diversification within a single asset class. Some mutual funds may include several asset classes.
- The asset allocation that is right for you depends on your investment time frame, goals, and tolerance for risk.
- As your investment time frame and goals change, so might your asset allocation. Many financial experts suggest re-evaluating your asset allocation periodically or whenever you experience a milestone event in your life such as marriage, the birth of a child, or retirement.