Every Financial Advisor talks about asset allocation, but what does that really mean to me?
In simple terms it means that we try to make sure your stocks, bonds, exchange traded funds and mutual funds are set up to maximize the different asset classes in a way that gives you returns without risk you can’t handle. Too many people buy mutual funds and stocks and lose sight of the type of asset classes they own.
Most common asset classes for stocks are Large Cap (capitalization or market value greater than $10 billion), Mid-cap (medium size or market value between $2 billion to $10 billion) and Small Cap (small size or market value less than $2 billion). There are developed international stocks (Europe, Canada, Austrailia) and emerging market international stocks (Brazil, China, India,etc…). Then there are the alternative markets (real estate, commodities). For bonds there are short term (less than 2 years to maturity), intermediate (longer than 2 years but less than 10 years) and long-term (over 10 years to maturity).
Think of it as a large garden salad. Too much of one thing can overpower the taste and change the nature of the salad. But the right mix of ingredients and dressing can enhance your experience and leave you wanting more.