Question

Asset allocation is critical investing concept can you explain please ?

Answer 1

Asset allocation refers to an investment technique which aims to balance risk and create diversification within a portfolio by dividing assets across a number of major categories (stocks, bonds, real estate, cash, etc.). Because each asset class in the portfolio experiences different levels of risk and return, each tends to behave differently over a longer span of time. While one type of asset may be increasing in value, another may be decreasing.

Investors looking to make an investment for a long period of time tend to focus their portfolios on stocks. One reason for this is that common stock tends to outperform most other financial instruments over a long enough timeframe. Investors who are looking to maximize returns over a shorter period, on the other hand, often diversify their portfolios by including investments other than stocks.In this case asset allocation will help better

Another reason is older investors tend to look for lower levels of risk. After retiring, an investor may need to depend upon savings as the only source of income. Individuals at or nearing retirement age tend to invest more conservatively, as it’s crucial that they preserve their assets at this stage.So asset allocation performs well here.