Mixing It Up: Asset Allocation and Diversification

This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing how asset allocation and diversification can work together to help mitigate portfolio risk:

Asset allocation and diversification are so fundamental to portfolio structure that it’s easy to lose sight of these strategic tools as you track the performance of specific securities or the dollar value of your investments. It might be worth considering how these strategies relate to each other and to the risk and potential performance of your portfolio.

Keep in mind that asset allocation and diversification are methods used to help manage investment risk; they do not guarantee a profit or protect against investment loss.

Establishing Balance

Asset allocation refers to the mix of asset types in a portfolio — generally stocks, bonds, and cash alternatives. These asset classes have different growth and risk profiles and tend to perform differently under various market conditions. Stocks typically have higher long-term growth potential but are associated with greater volatility, while bonds tend to have moderate growth potential with less volatility. Cash alternatives usually have low growth potential but are the most stable of the three asset classes; however, if cash investments do not keep pace with inflation, they could lose purchasing power over time.

There is no right or wrong asset allocation. The appropriate allocation for you depends on your age, risk tolerance, time horizon, and specific goals. Younger investors might be comfortable with…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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