Many options for diversification
While allocating assets over the different overall classes (stocks, bonds and cash alternatives) is one way to help ensure a diversified portfolio, further diversification can be created based on how you allocate the assets within those asset classes.
Your stock mix might include a blend of large cap stocks and stocks of smaller companies. Or you might want to put some money in U.S. stocks and a portion in foreign companies. Even bond investments can be broken over bonds that are tax-free vs. taxable bonds, or over bonds with various maturities, from those that mature quickly to others that are longer term.
Other investments can be used as a complement to the overall asset classes, with these additional options ranging from real estate to alternative investments such as hedge funds, private equity, metals or collectibles.
Asset allocation strategies
Individual investors and financial advisors take various approaches to calculating the appropriate asset allocation and level of diversification, but the most common approach is to consider what you’re investing for and how long you have to pursue each goal. Those goals then need to be balanced against your need for money for routine living expenses. Those with a very secure immediate income and a longer horizon to pursue investing goals can feel more comfortable investing more aggressively. On the other hand, if you’re already stretched a bit financially and would potentially have to tap your investments in the event of an emergency, you’ll need to weigh that against your longer-term goals and consider a more conservative approach. Some investors may have a core strategy for the majority of their portfolio aimed at matching market returns, while they take a smaller portion of their portfolio and put it in investments they recognize may behave very differently. These often are asset classes that require more active management but provide greater overall diversification.
Assets may also be allocated for a specific goal which can impact the level of risk one might consider for those particular investments. For example, you could have different allocations for funds being invested for retirement vs. those you’re investing for college tuition. Or a grandparent who is retired and takes a conservative approach to his or her overall portfolio might consider investing more aggressively with money intended to be an inheritance for a grandchild.
Remember, even if your asset allocation and diversified investments mix was right for you when you chose it, it needs to be re-evaluated periodically, as it will likely need adjusting as your circumstances change.
At Hauser Group Wealth Management, we believe in working for and with our clients to manage their wealth through changes in their circumstances and fluctuations in the market. We believe in the importance of asset allocation and liquidity. We explore each investor’s unique circumstances, helping them to determine the combination of high, medium, and low-risk investment assets that will work best for them. We also provide continuous monitoring of each clients’ assets, rebalancing as needed for changing circumstances or market conditions.
Investors may accumulate transaction costs when rebalancing investments, and tax liability may increase when rebalancing non-retirement accounts. Rebalancing does not guarantee a profit or protection against losses.
There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
No strategy assures success or protects against loss.
Asset allocation does not ensure or protect against a loss.