Solo Brokers help to understand, how to form a long portfolio and not be distracted by news noise. We have already talked about investment risk, risk management methods, Markowitz's portfolio theory and SPT. Now - about that, how asset allocation affects investment performance.
Asset classes are categories of investment vehicles. Usually allocate the following: stock, bonds, real estate, products and products.
How to organize
Within each asset class has its own subcategories. For instance, shares are equity securities. They can be systematized by sector - oil industry, the highest technology, metallurgy, The money, medicine, etc.; by state - Russian Federation, USA, Canada, England, Australia; by region - Asia, Latin America, North America, Europe. In addition, in terms of capitalization - a large, average, small, micro. There are common and preferred shares by type..
Bonds are debt securities. In addition to states and regions, they can be divided by issuers: municipal, urban, Corporate. By date: short-term, mid-term, long.
Products are divided into precious and industrial alloys, agricultural products, energy goods.
The property can also be divided into 2 large subcategories: residential and commercial.
Funds are classified by the currencies of different countries: rubles, Dollars, euros, yuan, etc..
What is similar asset allocation
Asset allocation, which is commonly called asset allocation abroad, allows financiers to achieve monetary objectives at a given level of risk.
For instance, a conservative financier wants to increase capital by ten percent once a year for 5 years. In this case, most of his satchel will be bonds.
Another example: an aggressive financier is willing to take risks and wants to double his capital. In this case, his portfolio will consist mainly of stocks.
The optimal financier will distribute capital between shares, bonds, currency and products in this way, not to exceed the acceptable level of risk, but with all this to get a certain efficiency.
Each asset class needs to be examined to complete the knapsack., its effectiveness, risk and interdependence with other asset classes.
Asset-based investment is a choice by economic sectors, but not between some securities. Instead of that, to talk about the acquisition of shares in Apple or Rosneft, financiers must decide, how much capital to invest in high-tech US companies, and which one - to Russian oil-producing organizations.
Apparently, that the distributions by asset class are, to create a competent investment portfolio. However, in addition to this, the financier needs to determine the timing and financial goals., which he wishes to achieve.
