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  • Welcome to the Investors Trading Academy talking glossary of financial terms and events.

  • Our word of the day isAsset AllocationIn the most basic sense, asset allocation

  • is simply how one's assets are divided among different asset classes, such as cash, stocks,

  • bonds, real estate, and so on -- even insurance investments, commodities, collectibles, and

  • other categories count. But the term also refers to an investment

  • strategy -- one that can reduce risk through diversification.

  • Clearly, having all your money in any one asset class can be risky. In 2008, the S&P

  • 500 plunged 37 percent. If you'd held all your assets in an S&P 500 index fund, your

  • net worth would have taken a big hit that year.

  • Simply put, strategic asset allocation involves taking your money and dividing it up into

  • several pieces, which you then allocate across different types of assets. Once you've decided

  • on how much of your money will go into each broad asset category, you then drill down

  • and choose individual investments that fit into those categories.

  • The first step requires two decisions. First, you need to decide what sorts of assets you

  • want to include in your portfolio. Traditionally, asset allocation strategies usually stuck

  • with three major asset classes: stocks, bonds, and cash. But recently, the availability of

  • alternative investment classes like real estate, commodities, and specialized investments in

  • private equity and hedge funds led to many investors broadening their asset allocations

  • to include more complex combinations of assets. After you decide which assets to include,

  • you must then choose how much of your money to allocate to each asset class.

Welcome to the Investors Trading Academy talking glossary of financial terms and events.

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B1 asset allocation asset class include real estate estate

What is Asset Allocation?

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    richardwang posted on 2015/09/29
Video vocabulary