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Trending now: yoga pants and supplements. In one of the world’s largest countries (pun intended), supplements have become quite popular. Admittedly, opinions about the effectiveness of supplements vary, but what we do know is that everyone is different and our body’s needs are unique. The vitamin B your girlfriend takes may keep you up at night. The fish oil your pilates instructor recommended may make you nauseous. Just as supplements should be tailored to your needs, so should your asset allocation. It’s personal. (Did you really think we wouldn’t tie this into finance?)
Asset allocation is the mix of investment types within a portfolio – most commonly, stocks, bonds and cash. The proper asset allocation will depend on your financial situation, time horizon for needing to use the funds and your risk tolerance. Generally, when you’re just starting out, your investment horizon is long so your mix will include a greater percentage of riskier investments like stocks, and will slowly change over time to include a larger allocation to more conservative asset types like bonds and/or cash.
It’s important to keep tabs on your asset allocation, as the mix between stocks and bonds will change as some investment values rise and others fall. Also, be cautious in using general rules of thumb about asset allocation (i.e., use 100 minus your age to determine your bond allocation). Like the wrong supplements, an improper allocation could cause nausea as well as other financial side effects. We repeat, asset allocation is personal.