John Pettey studied economics at Worcester College, Oxford University. Between 2005 and 2006, he was an investment analyst with Polygon Investment Partners in New York. A board member of Red River CDJR in Heber Springs, John Pettey is interested in private equity and investment asset allocation.
Asset allocation means dividing or allocating investment funds between diverse asset classes such as bonds, equity, stocks, or cash to minimize investment risks. Here are three asset allocation tips for a beginner:
1. Diversify your assets
Diversifying your investments across assets helps manage risk better. If one asset class fails to give good returns, you might counteract losses in that category with another asset class performing better in terms of investment returns.
2. Avoid moving assets in the short term
The temptation to shift funds from one asset class to another based on performance in the short term should be avoided. Juggling between investments and assets is costly and, over the long term, may prove futile. For example, when investing in equity, allocating funds with a long-term view is ideal.
3. Undertake periodic rebalancing
You need to analyze and rebalance your portfolio periodically. To assess the actual asset allocation of your portfolio, quantitatively categorize the different investments and determine their respective values in proportion to the whole.
