Asset allocation is a method of dividing your investment portfolio into stocks, bonds, cash according to your risk tolerance. This allows you to lower the risk of your portfolio management services. This allows you to take more risks, lose less, and be more flexible when responding to market volatility.

In investing articles, diversifying your portfolio is a common theme. This is similar to buying different types of food at the grocery store. Diversifying your investments should be done in the same way.

This will ensure that you receive all the nutrients from each investment. Diversification is not a guarantee of a profit. During an investment cycle, investors will lose money. The amount of the loss will depend on how much risk you are willing and able to take. If you're saving money for the future, like buying a car or sending your children to school, you will want to make large investments in equity funds and stocks. These investments have a greater potential for growth than other, more stable fixed-income instruments.

Age can also affect your asset allocation. Younger investors are more likely to take greater risks and be more aggressive. People nearing retirement may want to be less cautious. You must look at the whole picture to allocate assets effectively. If you don't look at the whole picture, you won't know if you are purchasing the right food at a fair price. Consider your financial goals and how they might play out.

A basic math formula can be used to determine how much of your portfolio should be allocated in stocks, bonds ETFs, or both. If a conservative investor has a 20 year time horizon, he might allocate 60% to stocks and 40% for bonds.

If you are more aggressive, you might prefer a lower stock to bond ratio. Asset allocations cannot be guaranteed to succeed. You should talk to your advisor before making any decisions. There is no "best" asset allocation. However, there are some rules that can help you choose when to move your portfolio to maximize upside potential or minimize downside risk. Josh Kutin explains the four markets. It is wise to have a system that identifies these markets and adjusts your allocations accordingly.