Did you know?
ASSET ALLOCATION is just a fancy way of saying how much of what you own is in each investment category:
– Low risk: cash, savings, money market accounts, certificates of deposit, bonds, fixed annuities, precious metals
– Medium risk: index funds, mutual funds, some stocks, real estate
– High risk: volatile stocks, crowdfunding, crypto, foreign exchange aka forex, hedge funds, penny stocks
You figure out how much each investment is valued at, then turn it into a percentage of the total investment amount.
For example, if your investments are $20 in cash, $50 in a S&P 500 index fund, and $30 in crypto, you have 20% low risk, 50% medium risk, and 30% high risk or a 20/50/30 asset allocation.
Over time the value of each investment will change. This will change your asset allocation. Depending on your goals and risk tolerance you will want to adjust your asset allocation accordingly.
If a year from now you still have $20 cash, but your S&P 500 stocks are worth $100, and your crypto jumped to $280, your allocation is 5/25/70. If you want to maintain a 20/50/30 allocation, you would either sell $160 of the crypto, reinvest $100 of it in a medium risk investment, and move $60 to cash (or some other low risk investment). Make sense?
Investing does not have to be overwhelming. While it does have its own language and can seem a little scary at first, anyone who has invested will tell you it can be a lot of fun.
The majority of millionaires have at least 10% of their income go to investing. The next time you have a few extra dollars, instead of buying some little throw away item or treat, buy some stock, invest in a fund, or find a fun cryptocurrency to purchase (there are over 13,000 coins- find one that grabs your attention). Often action is the best way to overcome fear (with a reminder to do your due diligence and have a basic understanding before you start buying).
Do you currently track your asset allocation? If so, how did you decided what you wanted your allocation to be?