By Richard Ferri
In terms of making an investment to your destiny, there is just one certain BET—ASSET ALLOCATION the simple strategy to start every little thing you want to find out about how one can: enforce a wise asset allocation technique Diversify your investments with shares, bonds, genuine property, and different periods swap your allocation and lock in earnings attempting to outwit the marketplace is a foul gamble. in case you are interested by making an investment for the longer term, you want to take a no-nonsense, businesslike method of your portfolio. as well as masking all of the fundamentals, this re-creation of All approximately Asset Allocation comprises well timed recommendation on: studying which investments paintings good jointly and why selecting the best mutual money and ETFs growing an asset allocation that’s correct on your wishes realizing how and whilst to alter an allocation realizing target-date mutual money "All approximately Asset Allocation bargains recommendation that's either prudent and practical--keep it basic, diversify, and, notably, continue your charges low--from an writer who either understands how important asset allocation is to funding luck and, most crucial, works with actual people." -- John C. Bogle, founder and previous CEO, the leading edge workforce "With All approximately Asset Allocation at your facet, you will be executing a legitimate funding plan, utilizing the simplest fabrics and donning the simplest protection rope that money can buy." -- William Bernstein, founder, Effi cientFrontier.com, and writer, The clever Asset Allocator
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Extra resources for All About Asset Allocation, Second Edition
Correlations between asset classes are not static. Low correlation among asset classes is preferred but difficult to indentify. Diversification is the time-honored practice of spreading financial risk across different investments to reduce the probability of a large loss. A portfolio of 1,000 stocks is more diversified than a portfolio of 100 stocks. Asset allocation is a type of diversification that spreads the risk widely over different markets. It involves estimating the expected risk and return on various segments of the financial markets, observing how those markets interrelate over different time periods, and then logically and methodically constructing a portfolio of investments that represents those chosen asset classes in ways that have the highest probability of achieving a financial goal.
Asset allocation is personal. There is an appropriate allocation for your needs at every stage in life. Your mission is to find it. HOW ASSET ALLOCATION WORKS Asset classes are broad categories of investments, such as stocks, bonds, real estate, commodities, and money market funds. Each asset class can be further divided into categories. S. stocks and foreign stocks. Bonds can be categorized into taxable bonds and tax-free bonds. Real estate investments can be divided into owner-occupied residential real estate, rental residential real estate, and commercial properties.
There are a couple of Treasury investments that are protected from the corrosive effect of inflation but not taxes. Treasury Inflation-Protected Securities (TIPS) and I-bonds are Treasury securities that protect principal and interest from rising inflation. 26 $50 $25 2009 2004 1999 1994 1989 1984 1979 1974 1969 1964 1959 1954 $0 Understanding Investment Risk 29 increase in the inflation rate. The interest paid during the period also increases with the inflation rate. Some people argue that TIPS are a better representation of a risk-free rate than T-bills because inflation is factored out.
All About Asset Allocation, Second Edition by Richard Ferri