Custom Search

Sunday, May 24, 2009

Does Balancing Your Portfolio Work?

From the Hoss's Mouth

For years now many money magazines and finance gurus have recommended portfolio diversification as a means to hedge against investment losses. For the most part this has been a successful strategy. However, last year's financial meltdown included nearly everything financial. Stocks, bonds, commodities and real estate all declined in value. Nearly everyone suffered big losses including those investors who diversified their financial holdings.

Does this mean that we should deep six the idea of portfolio diversification?

Hoss Cents Free Financial Money Magazine does not think so, and still prefers a balanced portfolio versus a portfolio that puts all your eggs in one or two baskets.

Hoss Cents Free Financial Money Magazine groups investors into several categories:
  • Very Conservative: 82% fixed income, 18% equities.
  • Moderately conservative: 78% fixed income, 22% equities.
  • Middle of the road: 60% fixed income, 40% equities.
  • Moderate growth: 43% fixed income, 57% equities.
  • High growth: 76% fixed income, 24% equities.
  • Aggressive: 0% fixed income, 100% equities.

balanced portfolio
What type of investor are you? Hoss Cents Free Financial Money Magazine's post asset allocation provided you with a simple calculation for determining the right mix between the two major asset categories of equities and fixed income.

You can use that method to determine how conservative (or not) of an investor you are, or you can use the services of a professional financial adviser who, if they are any good, will provide you with a client profile questionnaire.

Your work is not finished yet.

Now that you have determined what asset allocation is right for you, you must also decide what percentage of your fixed income will be cash, and what percentage will be bonds.

In addition, you should diversify your equities amongst several asset categories. You should not put 100% of your equity investment in one asset type (i.e. financials).

An easy way to diversify your equities is to purchase index or exchange traded mutual funds. If you prefer to build your own equities portfolio, be sure to include the major asset categories. A word of advice: Don't buy two things that are in the same asset category, otherwise you lose the diversity.

Once you have set up your portfolio with an asset allocation that suits your investor profile it will be necessary to rebalance it from time to time.

History has shown that a balanced portfolio will provide the best returns over the long haul. Hoss Cents Free Financial Money Magazine reminds you that there is no guarantee that your portfolio will grow, even if you have a perfectly balanced portfolio.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: May 31, 2009
Previous Post: Asset Allocation






Disclaimer

The Hoss is not a financial adviser. This blog is a reflection of his personal opinion, experience and financial choices. For financial assistance, please consult a licensed financial services professional.

The contents of http://free-financial-money-magazine.blogspot.com are provided for informational and entertainment purposes only, and should not be construed as advice. This material is not intended to provide, and should not be construed as providing individual financial, investment, tax, legal or accounting advice.

While the information shared on this website is believed to be accurate and reliable, the owners/operators of this website specifically disclaim all warranties, express, implied or statutory, regarding the accuracy, timeliness, and/or completeness of the information contained herein. Individuals leaving comments on this site are solely responsible and liable for the contents of their comments. Because this website is intended to provide general information only, you should discuss your specific needs with a qualified licensed financial services professional.

Links to other websites are for convenience only, and are independent from http://free-financial-money-magazine.blogspot.com. No liability is assumed for any inaccuracies in the information or for the content of any linked websites. No endorsement or approval of any other products, services or information is expressed or implied by any information, material or content referred to or included on, or linked from or to this website. No liability is assumed for incompatibility, non-suitability, viruses or other destructive/disruptive components on or from such websites.