Hiring Quality Financial Advisors In Florida For Asset Allocation
Your financial security cannot be left to chance. To be financially secure, the first step is financial planning, this allows you to strategically optimize your finances to help meet your goals. To achieve your financial goals faster and more efficiently, you need to first identify your investment goals. Numerous studies have shown that a goal-based financial plan can lead to greater wealth accumulation over time. All Seasons Wealth will provide you with quality financial advisors in Florida to help you prioritize your goals and allocate your assets wisely.
You must keep your goals in mind when you start the process of creating financial plans with a financial advisor. Next, you will work backward to create a detailed plan that will help you achieve your goals. You will need to plan your assets to reach a particular goal. Goal-based planning involves you dividing your assets among different investments. This will help you to get the right amount of money at the right time. This will may be if you are able to allocate your assets according to your investment horizon and risk tolerance.
What’s Asset Allocation?
Asset allocation helps you to manage your risk and reward. It allows you to allocate your assets according to your financial goals, risk appetite, and investment period. This strategy allows you to invest your money in different asset classes in different proportions. There are typically three main asset classes: equities and bonds. Cash equivalents are another. Alternative assets such as art, commodities, real estate, and derivatives may also be included in investment portfolios. Each asset class is classified by its behavior over time.
Asset allocation’s main goal is to decrease the risk concentration in your portfolio and to allow you to make substantial balanced returns. Asset allocation is based on the idea that asset classes do not have a perfect correlation. Asset allocation works on the principle that asset classes have no perfect correlation. This means that if one asset class loses value, another asset class can compensate. Asset allocation can provide diversification for your portfolio in the short term. Use quality financial advisors in Florida to assist with asset allocation, risk, and wealth management to reach your financial goals.
Why Asset Allocation Is Important?
Your investment performance is directly affected by your asset allocation. Asset allocation is also a key determinant of your risk level. You can choose different asset allocation strategies depending on your goals as an investor. If you want to save money for a car, you may prefer to allocate your funds in CDs and short-term bonds. If you’re creating a retirement portfolio, however, it might be more beneficial to have a portfolio that is more return-oriented. If you are closer to retirement, you could invest in stocks or retirement accounts such as an IRA (Individual Retirement Account). Your portfolio should be able to withstand short-term fluctuations because you have plenty of time before retiring. However, you should consider your asset allocation more conservative if you are close to retirement.
What Are Different Asset Classes?
There are usually three types of investments, with each having a different risk level and return.
- Cash: Cash and cash equivalents such as money market funds or certificates of deposit (CD) allocate as a risk asset in your portfolio. These assets offer no returns. When compared with inflation costs, the return on these assets is negative.
- Bonds: Bonds, also known as fixed-income investments, are lower-risk assets that provide a guaranteed return and lower risk than shares. You are lending money to a company or government when you purchase a bond. Bonds are typically issued by states, companies, municipalities, or central governments. You receive a fixed return in return for money borrowed from the bond issuer. Variable and floating interest rates bonds, which offer market-based returns, are also becoming more common. The U.S. Treasury bonds are the most secure type of bond. These bonds are 100% guaranteed by the federal government but offer only a marginally higher return compared to cash. Municipal bonds, on the other hand, offer a higher return but are riskier than Treasury bonds. Bonds can provide diversification for your portfolio, depending on your investment horizon and risk tolerance. You might want to increase your bond investments if you are close to retirement in order to receive higher returns and lower risk. Too much in bonds can lead to poor asset allocation. Their returns may not be enough to offset inflation over the long term.
- Stocks: Stocks, also known as equities, require risk but can offer the highest returns. Stocks can outperform inflation over time and may allow you to reach your financial goals. For optimal diversification, stocks can be further spread across small, medium, and large-cap businesses. You should aim to have greater asset allocation in equities in your younger years. Because you have a longer investment time horizon and are better able to absorb volatility in the market, this is a good option. A well-constructed portfolio is one that includes stocks and bonds in a thoughtful mix. It can provide attractive returns and manageable risk depending on your tolerance level.
These asset classes are not the only options available. There are many other investment options that can be made to meet your goals. These are:
- Real estate
- Derivatives
- Commodities like gold, oil, and so on
- Currencies and cryptocurrencies
An example can help you understand asset allocation. You have $10,000 to invest. You decide to divide your money into three asset classes: equity, bonds, cash. You are a risk-taker who is more than 10 years away from retirement so you decide to invest 60% of your money into stocks. This money is further divided into small-cap and large-cap companies to maximize diversification. Index funds are purchased for $4,000 by large-cap firms and $2,000 by small-cap firms. You also invest 35% in bonds and fixed-income investments such as Treasury Bills or municipality bonds. You can secure $500 cash and cash equivalents.
In this instance, your equity shareholdings can benefit if the market experiences an upswing. Bonds and other lower-risk investments are less volatile than stocks, so you may be protected in the event of a market downturn. You may maximize your returns by placing your assets in different baskets. This is designed to allow you to get higher returns and also diversify your portfolio to lower risk and help reach your financial goals.
How Does Asset Allocation Relate To Your Financial Goals?
Asset allocation is heavily influenced by your goals. Your goals will influence how you allocate your assets. Your investment goals, risk tolerance, and investment horizon are the main factors that affect your asset allocation.
Your asset allocation should be used to map your investment goals, such as purchasing a house or sponsoring the education and marriage of a child. Retirement planning can also be included. Your asset allocation will also be affected by the time period and risk tolerance. If you’re 58 and are nearing retirement, your investment horizon and risk tolerance will be limited. The ideal asset allocation may be to invest in more bonds and build a conservative portfolio that focuses on capital preservation, rather than growth.
Alternately, you could choose to allocate more assets to young investors in their early 30s who are looking to save money and invest in a home. It is possible to put 60 percent or more of your money in equity, and the remainder can be used for cash equivalents, bonds, or other assets such as commodities or real property. Experts suggest that you also use the rule of 100 when determining the stock percentage you should own. Divide your age by 100 to get the percentage of your money that should be invested in stocks.
However, cash is the best asset to allocate for financial goals that will require the money within a year. If you invest, your principal could be lost. For the money, you may need in a few years, or for a shorter time, it is worth considering investing in income-producing assets like CDs, Treasury Bills, bonds, and other such assets.
Determining The Best Asset Allocation To Help Achieve Your Goals?
Experts agree that there is no one-size-fits-all approach to asset allocation. Asset allocation is a personal decision that depends on your financial goals, age, and risk tolerance. Your life stage and situation, such as being single or married with children, can also have a significant impact on your asset distribution. Your investment strategy and portfolio asset distribution will be different depending on your current needs and future goals. Your portfolio asset structure will also be affected by your ability to keep your cool in adverse market conditions. Your asset allocation may need to be adjusted and corrected as your needs change over time. Gradual monitoring is crucial as well as adaptation to change.
Manage Asset Allocation By Choosing Target-date Funds
The right asset allocation is crucial to the success of a portfolio and the achievement of financial goals. Target-date funds are an alternative to asset allocation in goal-based investing. A mutual fund with a target-date date is one that invests across many asset classes. As the target date nears, it gradually shifts to a more conservative asset allocation. Target-date funds manage your asset allocation. You don’t have to constantly monitor your portfolio or rebalance it to adjust the asset allocation.
As an example, let’s say you invest in a target-date fund that will mature in 2055. The fund will currently invest the majority of your money in high-risk assets such as stocks, and the rest in bonds. As you get closer to 2045, your asset allocation will be more conservative and include more bonds than equities.
Target-date funds generally follow comprehensive investment practices. These funds are diversified across various asset classes according to your financial goals and age. Because you don’t have to be involved in management, these funds are easier to manage. Target-date funds are a good medium for goal-based investments, but they don’t take into account your risk tolerance or the possibility of life changes. You might get a promotion or an inheritance that allows you to retire seven years sooner than you planned. If you are close to retirement, it is a good idea to adjust your asset allocation with help from quality financial advisors in Florida. Your asset allocation may be different for target-date funds because it indicates the year you originally planned to retire.
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You can pursue your goals with financial planning to help you prepare for a better future for you and your family. Contact us today to speak to a financial advisor in Tampa.
Any opinions are of All Seasons Wealth Advisors In Tampa are not necessarily those of RJFS or Raymond James. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Past performance may not be indicative of future results.
Prior to making an investment decision, please consult with your financial advisor about your individual situation.
Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.
Forward-looking data is subject to change at any time and there is no assurance that projections will be realized.
Disclosure: Diversification and asset allocation do not ensure a profit or protect against a loss.
Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise.
Holding stocks for the long term does not ensure a profitable outcome. Investing in stocks always involves risk, including the possibility of losing one’s entire investment.
Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.
CDs are insured by the FDIC and offer a fixed rate of return, whereas the return and principal value of investment securities fluctuate with changes in market conditions.
Bitcoin issuers are not registered with the SEC, and the bitcoin marketplace is currently unregulated. Bitcoin and other cryptocurrencies are very speculative investments and involve a high degree of risk.
