Finance: What is asset allocation?

What is asset allocation? Asset allocation is the process of executing an investment strategy that is tailored to a particular investor’s risk tolerance and return on investment goals. While investors would like to get as large a return as they can, those with weak stomachs will blanche at the volatility of option and high flying tech stocks and may endure less sleepless nights invested in large cap equities or bonds, eschewing the higher potential returns for greater peace of mind. Asset allocation also needs to be regularly reviewed and adjusted should market conditions change in order to minimize losses or erosion of gains.

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Transcript

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the land of finance? well there are a couple of key things to keep in mind and

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in baskets. first investments in an of an asset class like oil or transportation

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or commodities like cotton or technology like software, very roughly tend to all

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move together like Canadian Geese in the spring. that is the price of oil

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controlled by Royal Dutch Shell, correlates almost exactly with the price

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of oil controlled by British Petroleum or BP. there are two different stocks but

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they generally move in lockstep so if you invested in one company odds are [man sits on mossy bench]

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good that its performance will have been very similar to that of all of its

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competitors in the same oil producing space. oil is an asset and the notion of

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intelligent asset allocation is that you want to diversify away risk in your

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portfolio by diversifying the asset classes in which you put your dough. so

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if you wanted to be broadly exposed to the S&P 500 with its dozen or two asset

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classes, well you'd want to pepper your eggs in some semi even distribution may be across baskets in telecommunications real estate utilities retail insurance

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banking and so on. such that when those potholes come along and you trip in one [eggs put in a line of baskets]

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and you most certainly will and the basket ends up looking more like paper

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when you stand up because you smushed it. well then you still have eggs to cook

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from other baskets you put your money in. if that still doesn't work well maybe go

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vegan. [girl stands in kitchen with empty basket and fruits on the counter]