The basics of a portfolio’s asset allocation


The combination of investments you choose can be as important as your specific investments. The mix of various asset classes, such as stocks, bonds and cash alternatives, account for most of the ups and downs of a portfolio’s returns. Deciding how much of each you should include is one of your most important tasks as an investor. That balance between potential for growth, income and stability is called your asset allocation. Asset allocation doesn’t guarantee a profit or insure against a loss, but it does help you manage the level and type of risks you face.

Ideally, you should strive for an overall combination of investments that can help to minimize the risk you take in trying to achieve a targeted rate of return. This often means balancing more conservative investments against others that are designed to provide a higher return but that also involve more risk. Many publications feature model investment portfolios that recommend generic asset allocations based on an investor’s age. These can help jump-start your thinking about how to divide up your investments.

However, because they are based on averages and hypothetical situations, they shouldn’t been seen as definitive.

Your asset allocation is – or should be – as unique as you are. Even if two people are the same age and have similar incomes, they may have very different needs and goals. You should make sure your asset allocation is tailored to your individual circumstances.

When financial professionals refer to asset allocation, they’re usually talking about overall classes: stocks, bonds and cash or cash alternatives. However, there are others that also can be used to complement the major asset classes once you’ve got those basics covered.

They include real estate and alternative investments such as hedge funds, private equity, metals or collectibles. Because their returns don’t necessarily correlate closely with returns from major asset classes, they can provide additional diversification and balance in a portfolio.

Even within an asset class, consider how your assets are allocated. For example, if you are investing in stocks, you could allocate a certain amount to large-cap stocks and a different percentage to stocks of smaller companies, or allocate based on geography.

Bond investments might be allocated by various maturities, with some money in bonds that mature quickly and some in longer-term bonds. Or you might favor tax-free bonds over taxable ones, depending on your tax status and the type of account in which the bonds are held.

Even if you’ve chosen an asset allocation, market forces quickly begin to tweak it. For example, if stock prices go up, you may eventually find yourself with a greater percentage of stocks in your portfolio than you want. If they go down, you might worry that you won’t be able to reach your financial goals. The same is true for bonds and other investments.

Even if you are happy with your asset allocation, remember that your circumstances will change over time. Those changes may affect how well your investments match your goals. At a minimum, you should periodically review the reasons for your initial choices to make sure they’re still valid. Also, some investments, such as mutual funds, may actually change over time; make sure they’re still a good fit.

If you have any questions about your portfolio’s asset allocation contact Community Bank Wealth Management directly at 1-800-464-1834! We look forward to speaking with you!

Bob Bishop is the founder and senior member of The Bishop Wealth Management Group of Janney Montgomery Scott LLC. Bob has been a Financial Advisor with Janney Montgomery Scott since 1983 and became a senior officer in 1988. The Bishop Wealth Management Group is located at One PPG Place in Pittsburgh, PA and can be reached at 800-441-1514.

“Prepared by Broadridge Investor Communications Solutions, Inc. Copyright 2017.” The Bishop Wealth Mangement Group of Janney Montgomery Scott provides investment services to the clients of Community Bank through Community Bank Wealth Management Services. Community Bank Wealth Management offers wealth management services through The Bishop Wealth Management Group, Janney Montgomery Scott LLC member NYSE, FINRA, SIPC. Investments provided through Janney Montgomery Scott 1) are not insured by the FDIC, 2) are not deposits or guaranteed by your bank, 3) are subject to risks including the loss of principal. Traditional wealth management services and complete financial planning services are provided. The financial planning is done in conjunction with an individual’s current legal and tax professionals. Janney Montgomery Scott LLC nor its Financial Advisors provide tax, legal, or accounting advice. Please consult with the appropriate professional for advice concerning your particular circumstances. Janney Montgomery Scott LLC. Member NYSE FINRA SIPC.

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