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What Is Asset Allocation?

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When dealing with investments, it's vital to understand the various asset classes and how to allocate available resources to each. The principle of asset allocation exists to help investors reduce the risk of their investments, since each asset class reacts differently to different market situations.

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What Is Asset Allocation?

  1. 1. What Is Asset Allocation? Kevin Neal Business
  2. 2. 2 What is Asset Allocation? The amount of an investor’s resources placed in a particular asset class is guided by an allocation model, with each model driven by a specific objective. W hen dealing with investments, it's vital to understand the various asset classes and how to allocate available resources to each. The principle of asset allocation exists to help investors reduce the risk of their investments, since each asset class reacts differently to different market situations. For example, when stock prices increase, bonds tend to decrease.
  3. 3. 3 The amount of an investor’s resources placed in a particular asset class is guided by an allocation model, with each model driven by a specific objective. Capital Preservation Preserving capital is a motivation for investors who wish to retain the principal value of their investments and expect to use it within a short period of time. An individual planning to purchase a house, for example, will not risk losing even a small percentage of their investment. Income Generation Investors with income generation in mind are those seeking to have their investments earn a profit for them. A typical investor with such an objective is an individual nearing retirement who wishes to have a steady income over a long period of time. Growth Purposes An asset allocation model with growth as its objective is designed for investors looking to build wealth in the long-term. Typically, the investor has another source of income, so they have the freedom to focus on growing their investment portfolio.
  4. 4. To learn more about this topic, visit the blog of Kevin Neal.

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