Strategies for ensuring optimal asset allocation for your investment portfolio

Most investors are driven to engage in asset diversification based on financial goals, investment timeframe, and the willingness to take risks. But as a rule, never put all your eggs in one basket. Asset allocation is all about abiding by this saying, says financial services consultant Scott Tominaga of PartnerAdmin LLC.

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As far as approaching asset allocation itself is concerned, you could either go for a fixed or strategic method or a tactical one. The former involves investing proportionately in different asset classes, with the returns computed based on average returns across those investment types. Tactical asset allocation is geared more toward capitalizing on short-term opportunities, with assets shifting to more favorable classes based on market timings. As soon as one short-term profit is realized, the investment process resets to its original allocation.

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Note that each asset class comes with its set of associated risks and returns, and often behaves differently over time. Financial experts will insist that such will depend on how an investor allocates his or her investments. But do know that choosing individual funds or securities often comes second in priority to the main types of asset categories (namely cash, bonds, and stocks).

All in all, keep in mind that asset allocation is also dictated by the investor’s age, adds Scott Tominaga. Younger investors between 21 and 30 years of age are more advised to invest heavily in equities and counteract this with some debt investments. Those in between 31 and 45 need more allocations on securities and more balanced debt-equity investments. Finally, those nearing retirement age should focus more on debt investment and less on equity.

PartnersAdmin LLC Chief Operating Officer Scott Tominaga has been in the business for over 17 years and has become proficient in the areas of middle and back office, accounting, compliance, and administrative functions within financial services firms. Visit this blog to read related posts.