Example Asset Allocation Plan

After determining your objectives the second step in the investment process is to determine how to allocate funds within a variety of investments (money market, bonds, stocks, options, future contracts. real estate and collectibles.) Funds that you may need any time should be invested in the money market. Funds demanding a long term could be invested in bonds, stocks, and other assets such as real estate, options and future collectibles.

Asset Allocation Plan

  • Options and future contracts  5%
  • Real estate     10%
  • Money market    10%
  • Bonds      30%
  • Stocks      45%

Asset allocation is the allocation of funds in different investment categories such as money market, bonds, stocks, options, future contracts, real estate and collectibles. If you had, for instance, all your money in savings accounts, you’d probably decide to allocate in the money market (for a short term and urgent need), bonds, stocks, future, real estate, and any other asset investment.

One doesn’t usually earn too much in the money market, but it provides you immediate access to funds in case of need. Bonds provide a better and more stable income than the money market. Bonds have maturity deadlines and the risk of loosing your capital is higher if you had to liquidate them ahead of the predetermined date.

Stocks offer the best financial return when investing for a long term (from 10 years up) Nevertheless, due to the fact that stock prices fluctuate, risk in loosing money could be higher if you decide to liquidate investments when price is low. That is why investing in stocks require a long term, so that when you sell them they have already experienced a raise in value; what would not happen if sold out of time when already depreciated.

Investors with a long term horizon ( 30 years or more before retirement) should generally allocate their investing assets in stocks and other assets like real estate which usually offers a profitable long term margin. That way you will have money for future long term investments. Investors near retirement should allocate most of their money in the money market and bonds. These will provide you immediate profits for expenses and a small amount could be allocated in stock investments as to increase your portfolio. The asset allocation plan are revised and re-oriented from time to time depending on the current  financial  situation.

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