19 August 2011

Asset Allocation - Key Part in Personal Portfolio Management

Asset Allocation, in my opinion, is the key part in your personal portfolio management. It means that after you have taken notice of your risk & return characteristic, you can now start thinking of constructing a good personal portfolio that suits to you needs, be it a long term needs such as children education purposes or retirement needs, or short term needs such as marriage expenses.

Asset allocation, is the way how you allocate your cash in different asset classes. Let me show you an example:

50% - Stock
40% - Fixed Income / Alternative Investment / Commodities
10% - Cash & Equivalent

Why I just allocate 10% as cash & equivalent? In long term investment, cash is always just a tool for us to park there temporarily as we always knew that Inflation will 'eaten' up all our cash, as the purchasing power reduced, means that we will need to use more cash to purchase a same thing today as compared to few years ago.

50% in Stock/Equities will allow you to always in a 'Balance' mode, means that you will neither be aggressive nor conservative.

Of course, if you more aggressive, you can adjust upward the portion of Stock/Equities in your personal portfolio. If you are more conservative (most girls are conservatives), you can invest in Fixed Income related, such as REITs, Fixed Income ETFs, Gold ETFs, Unit Trusts or even real estate. 

My personal advice to you is to invest in ETFs/REITs/Unit Trusts before you start investing in personal stock, to learn how the global market movement, before you learn about the micro economic (such as analyze a company performance in long term etc).

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