Asset Allocation Models, Different Portfolio Asset Allocation Models

Saturday, June 9, 2007

Asset Allocation Models

Asset allocation is a strategy used by investors to balance their profit and risk by diversifying their portfolio investments. The main objective of asset allocation is the surety in earning in all changing environments. The main classes available in an asset allocation model include stocks, bonds, cash, real estate, forex currency, precious metals etc. Asset allocation is now considered as a large step in the financial planning of an individual.

The practice of asset allocation depends on the need, financial background, risk tolerance ability, investment horizon etc. Each person needs a different asset allocation model. There are mainly 4 different asset allocation models as

Preservation of Capital Model –This asset allocation model is for those want to preserve their money for near future. The major part of their portfolios includes treasury notes and commercial papers.

Income Model - This asset allocation model is for those demand steady income for a considerable period of time, especially those on retirements. Includes investing in real-estate, treasury notes, shares of companies with prolonged dividend payments, insurance policies etc.

Growth Model - This asset allocation model is for those want to maximize their capital in a short-time. Includes mainly investing in stocks and similar instruments. They mainly follow growth investing strategies and prefer mid cap and small cap stocks.

Balanced Model - This asset allocation model is for those what growth and income. Includes investments in fixed income instruments, real-estate, stocks of all sizes (large, mid and small cap in a managed way) etc.