Allocate your assets optimally
- Consider your risk appetite, life stage, and available liquidity.
How much disposable income you have and what stage of life you’re at will inform the risks you’re willing to take.
- Create a ‘Security Bucket.’
This is for investments that you can’t bear losing. And your risk tolerance/life stage will determine how much you put in here. In this bucket will be your pension, home, bonds, cash/cash equivalents, CDs, life insurance, etc.
- Create a ‘Risk/Growth Bucket.’
Here, you’ll have investments such as high-yield bonds, real estate, equities, and commodities. Always ask yourself if the rewards would be worth the risk before investing.
- Diversify even within the buckets.
You should diversify across: securities, asset classes, markets, and time. That’s how you truly get a portfolio for all seasons. The ultimate diversification tool for individual investors is the low-fee index fund, which gives you the broadest exposure to the largest numbers of securities for the lowest cost.
- Schedule your investing.
The market fluctuations work to increase your gains when you invest the same amount of money each month or week in accordance with your asset allocation plan. You acquire more shares when prices fall and own more of the market when they go back up.
- Rebalance your portfolio regularly.
From time to time, a particular part of one of your buckets may grow significantly and disproportionately to the rest of your portfolio, throwing you out of balance. So you need to reallocate them to balance your portfolio regularly.
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