Your personal investment profile is the start of the asset allocation process, which consists of dividing your portfolio up among the major asset categories of stocks, bonds and cash.
The asset allocation decision is extremely important-the decisions you make here will have a far greater impact on your overall portfolio return than more specific decisions assuming, of course, that you stick to the investment principles outlined here.
Next, you will make allocation decisions within the major categories. For instance, your stock portfolio can be divided among large capitalization stocks, small capitalization stocks and international stocks. Your bond portfolio can be divided into international bonds and domestic bonds. with the latter being further divided among long-term and intermediate-term bonds, high-quality corporates, lower-quality corporates, governments and municipals. And your cash portion can be divided among such instrumentsas money market funds and certificates of deposit.
Once these decisions are reached, you will be ready to make selections among the various investment options. Your selections can either be make by an outside adviser (for instance, by hiring a private investment adviser or a financial planner), by investing in mutual funds, or by doing yourself through individual stock and bond selection.
Lastly, once you have set up your investment portfolio, you must monitor it, making changes when appropriate.
The asset allocation decision is extremely important-the decisions you make here will have a far greater impact on your overall portfolio return than more specific decisions assuming, of course, that you stick to the investment principles outlined here.
Next, you will make allocation decisions within the major categories. For instance, your stock portfolio can be divided among large capitalization stocks, small capitalization stocks and international stocks. Your bond portfolio can be divided into international bonds and domestic bonds. with the latter being further divided among long-term and intermediate-term bonds, high-quality corporates, lower-quality corporates, governments and municipals. And your cash portion can be divided among such instrumentsas money market funds and certificates of deposit.
Once these decisions are reached, you will be ready to make selections among the various investment options. Your selections can either be make by an outside adviser (for instance, by hiring a private investment adviser or a financial planner), by investing in mutual funds, or by doing yourself through individual stock and bond selection.
Lastly, once you have set up your investment portfolio, you must monitor it, making changes when appropriate.
