1. Asset allocation
Asset allocation refers to varying the proportion of investments according to the type of asset when an investor composes a portfolio. It is largely divided into stocks, bonds, and cash equivalents. Because all asset prices are affected by the macroeconomics, the rate of return of each asset varies depending on the economic situation. Long-term return on investment is the most skewed by asset allocation rather than picking individual stocks or timing the market.
The most appropriate asset allocation for an investor depends on how long you can invest and the risk you can take.
The investment period can be months, years, or decades, so you need to allocate your assets according to your investment goals. For investors who want to invest in value, the importance of asset allocation becomes even greater as long-term investments of more than 10 years are fundamental. Long-term investors with appropriate allocation of assets are not swept away by changes in small and large cycles of economic conditions, and are flexible enough to cope with unavoidable stock price fluctuations.
The more you take on the risk, the higher your return is. People who hold fluctuating stocks or bonds have historically earned higher returns than those who only have cash for life. You can invest in stocks, bonds and cash in an appropriate proportion according to the risk you can endure. However, the longer the investment period, the easier it is to hold a higher proportion of stocks with less risk.
It's simpler than you think how asset allocation can effectively reduce risk and preserve return on your investment. Funds withdrawn from one asset do not disappear completely, but only move to another class of assets that are expected to give higher returns than that asset. Just understand that there is no permanent price increase for any particular asset.
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There is no perfect asset allocation to meet all investment goals. We hope that you allocate your assets appropriately in the biggest picture according to your own propensity and return on investment.
If you have finished distributing your assets with stocks, bonds, cash, gold, etc., please allocate the distributed assets according to the country, industry, or bond, depending on the issuer. In accordance with the ever-changing economic conditions, well-diversified assets will give you stable returns.
Diversification within stocks will be covered in more detail later.
2. Rebalancing
During the investment period, investors may change their financial situation and investment goals. Also, over time, the proportion of assets initially allocated will have changed somewhat. In response to these changes, investors must adjust their asset weighting, which is called rebalancing.
By rebalancing, investors can manage risk by adjusting the proportion of specific assets.
Rebalancing is very simple. That's all three ways.
1. Buy a declining asset by selling a portion of an asset that has risen.
2. New investments in declining assets.
3. If the portfolio maintains the weight of the asset, make a new investment in the fallen asset to make the initial weight.
When rebalancing your portfolio, consider transaction costs, taxes and exchange rates, and we recommend that you do it at the lowest possible cost. It is also a good idea to set a rebalancing interval. You can do whatever is convenient for you, such as once every 6 months, once a year.
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