Understanding Your True Asset Mix
Over the past 20 years, asset allocation has increasingly become the foundation of individual as well as institutional investment portfolios. Asset allocation entails exchanging the potential to reap a higher return – and the risk of taking an equally dramatic loss – for the likelihood of generating a more consistent, positive return over the long term.
The general idea is that instead of devoting the bulk of your assets to a particular sector or even one specific investment, you choose different types of investments. Underlying this decision is the assumption that each asset class will react somewhat differently to a given event.
Basic Asset Classes
Depending on your appetite for risk, the economic environment, your specific investment objectives and other factors, your portfolio might include some or all of the following:
- Cash and cash alternatives
- U.S. equities
- Non-U.S. equities
- Fixed income
- Real estate
- Alternative investments