Regardless of which asset classes you invest in as an investor, whether Stocks, Bonds, Gold, ETFreal estate or others, you will not be able to avoid the topic of asset allocation. Here you can find out what exactly asset allocation means and what you should consider in this area.
What does asset allocation mean?
This term can be translated as "Investment allocation", "Asset allocation" or "Portfolio structuring". This is a large number of synonyms that describe the different asset classes into which an asset or portfolio has been divided.
Investors have different preferences, goals and characters. This is why they are interested in different asset classes. Asset allocation therefore describes, according to which asset classes a portfolio was divided.
As soon as an investor is interested in more than one asset class, they have to ask themselves in what proportions they should invest in certain assets. Various aspects play a role here, such as age or risk affinity.
Especially if you are an investor with a long-term investment horizon you should think about your asset allocation. A clear strategy can help you to better achieve your financial goals. In addition, risks can be reduced by taking certain measures in the course of asset allocation.
What to consider when allocating assets?
If you are setting up a structure for your portfolio and want to stick to fixed allocations, you should use the so-called Rebalancing Note. Rebalancing is the reallocation of units and is used to maintain or restore the weighting.
For example, if one share has outperformed another and is worth significantly more, the portfolio is brought back to its original weighting towards the end of the year by investing in the other share. In the long term, it has already been proven that rebalancing can improve the Return on own portfolio increases.
Also the Security is an important aspect of asset allocation. Investing in different asset classes, sectors and companies increases the security of your portfolio. The reason for this is the Diversification. If certain positions perform worse than others, they can be "absorbed" by other stocks if you have invested in a large number of different stocks.
In addition, investments behave differently when economic crises occur. While shares fall, for example during the coronavirus pandemic, the price of gold often rises. In this way, a well-balanced portfolio can Reduce risks.
Personal goals and characteristics should also be taken into account and included when setting up your asset allocation. Ask yourself how willing you are to take risks and draw conclusions from this as to how high your return component or your security component should be.
What asset allocation strategies are there?
In principle, a distinction can be made between four different strategies A distinction can be made between the following types of asset allocation: dynamic, strategic, core-satellite and tactical asset allocation.
With the dynamic Asset allocation attempts to find a balance between expected return and expected risk. The weightings can be changed over time if there are changes in the market. Higher expenditure is to be expected due to new objectives and portfolio adjustments.
Also a strategic The aim of the dynamic portfolio is to maintain a balance between return and risk. In contrast to the dynamic portfolio, the composition of the portfolio remains constant, even if the economic situation changes.
The Core-satellite strategy is used when an investor establishes a fixed core and adds various satellites. The core is intended to provide stability, while the satellites are intended to generate returns.
The Tactical strategy is comparatively active. The portfolio is regularly adjusted in order to exploit opportunities on the market in the short term. These opportunities should make it possible to achieve high returns. The strategy requires intensive market observation, knowledge and time.
Conclusion: Customized asset allocation for your portfolio
There are No perfect asset allocation. The allocation or choice of asset classes depends on the preferences, characteristics and objectives of each investor. Nevertheless, there are a few basic rules that should be observed.
A Rebalancing at regular intervals can increase the return on the portfolio. In addition, the Diversification Reduce risks and improve security in your portfolio. Investments behave differently, which is why Risks can be further reduced if investments are made in various systems.
The four different strategies of asset allocation differ in terms of how stable or flexibly changeable the distributions are used. This also involves different amounts of time, as regular adjustments require up-to-date market knowledge.