Using asset allocation

What would happen to you if 95 percent of your investments were in the stock market and the market took a turn for the worst? Would you be able to survive? There are always stories of investors that lose everything in the stock market because they didn't have diversified portfolio or they simply invested too much into one particular stock. It is natural for human beings to get greedy and want more, especially when we have had the taste of something we like. The stock market is one place where you need to leave your greed outside and focus on building a diversified portfolio.

What goes into a diversified portfolio? Well, you need to have a little of everything not just stocks and bonds. A good portfolio will include shares, properties, cash, private equity investing, and other investments. When it comes to investing, you need to rule out the idea of loving one particular stock and sticking to it no matter what. While you may make some money from this stock, you still need to protect yourself by investing in various asset classes. Technology stocks are great, but you should only invest in them if you understand them and know what you are doing. It will be much easier to predict what is happening with stocks when you already share a common interest in them.

For example, let's say you like to read books and you are a frequent visitor to Barnes and Noble. Take a look at their stock and see where they are at, ask for a copy of their recent annual report, and make a decision on if their stock is worth your investment. Since you are a paying customer to Barnes and Noble, you are most likely to monitor this stock closely and encourage your friends to purchase their books from there.

In addition to Barnes and Noble, you still need to allot money to other investments like utilities or even banks. Since a lot of banks have been struggling, you can get bank stock for a low price right now. Utilities are a wise investment because there will always be a need for it. Think about it, you wouldn't be able to read this article if you didn't pay your utility bill. Utilities are like bonds, they provide you with a guaranteed return and you don't really need to do anything.

Investment properties are another great way to utilize asset allocation. If you are just buying your first home, this property is now part of your investment strategy, even if you don't plan on selling it for a long time. People that make money with real estate normally rent out properties to individuals or businesses. The bad part about this type of real estate investing is that you will need to worry about all the things that come along with being a landlord.

Don't forget about bonds. Bonds are great for your portfolio because they are extremely low-risk and they are guaranteed. You will get back the money you invest, plus some interest. While you won't become a millionaire from bonds, at least you don't need to worry about losing everything when the market falls.

Brokers and financial planners will tell you that you need asset allocation when it comes to investing. Your portfolio needs to be diversified; you can do this by taking 60-70 percent of your money towards income funds and conservative investments. Then take another 30-40 percent and put this money into some high-risk stocks. This way, even if you lose the 30-40 percent, you still have 60-70 percent invested in solid investments that will make a return.