Asset allocation is a must

“Asset allocation” is how you have divided your investments between different assets. You can have all your assets in one place, or you can use diversification to spread them out to reduce risk.

Details

When you pick stocks, open a bank account, get paid, buy something or do something with some resources, you are doing some kind of “asset allocation”. Early on, the choice is simply “Spend” or “Save”, how you use your money. But like most things with investments, it’s never that simple. For example, once you’ve chosen to “spend” or “save” a dime, you have another choice to make: – If I spend it, do I buy a video game or go out to the movies? – If I save, do I put it in a savings account or keep it as cash? For us, we care most about savings. So if you save £1,000, you can keep it as cash, put it in a savings account or invest it. – If you put it in a savings account, there are different kinds of savings accounts that can give you higher interest, but limit how much you can withdraw. – If you invest it, you can split your investment between stocks, bonds, mutual funds or ETFs – If you invest in any stock, bond, mutual fund or ETF, you need to decide which specific ones to invest in Of course, at each level, you can also choose to split your money and do one thing with one portion and something else with another. With your 1,000 kroner, you can spend 300, keep 100 as cash, put 200 in a savings account, use 150 to buy Investor shares, and invest the last 250 in mutual funds. That’s a lot of choices to make, even with a small block of assets!

Choosing how to distribute your assets

Every time you allocate your assets, you make many choices at once

When you spend

When spending your assets, your main decision is opportunity cost. If you spend your money on one thing, you can’t spend it on another, so you need to make sure you buy whatever it is that gives you the most benefit. You are also choosing not to save or invest, which means that the benefit you get from buying something today should outweigh the benefit of having the extra investment return in the future.

When you invest

When investing, your asset allocation will be based on four main criteria: 1. Risk: Taking bigger risks can sometimes bring bigger rewards, but you still have the chance to lose big too. How much risk you can tolerate will dictate much of your asset allocation. 2. Liquidity: How much do you want the freedom to move your money? Assets that you can quickly convert back to cash are said to be highly “liquid”, while assets that are very difficult to convert to cash (like houses) are “illiquid”. How much you value being able to shift your asset allocation over time will also dictate the type of things you invest in 3. How much you have: You can only buy a house if you have the means to pay for it, and that goes with most other investments too. If you don’t have the assets required for a minimum investment, some options may not be open to you. However, this is becoming less and less of a problem with stocks, bonds, mutual funds, and ETFs. 4. Opportunity cost: This is the same as with expenses; whatever you invest in an asset is money you can’t use to buy something or invest in something else. When you balance these four criteria, you start coming up with your asset allocation. Just because you value one more than the others doesn’t mean all your assets will end up in one place either; a person who values liquidity the most is unlikely to keep all their assets as cash, both because it’s risky (cash can be easily lost or stolen), but also because there’s only so much cash you need at one time, so you can keep a lot of money but still have some invested. Asset allocation is the basis for risk management, building a portfolio and diversification

About the Vikingen

With Vikingen’s signals, you have a good chance of finding the winners and selling in time. There are many securities. With Vikingen’s autopilots or tables, you can sort out the most interesting ETFs, stocks, options, warrants, funds, and so on. Vikingen is one of Sweden’s oldest equity research programs.

Click here to see what Vikingen offers: Detailed comparison – Stock market program for those who want to get even richer (vikingen.se)