Every industry has its own language and terminology, and the financial world has more insider terms than most. Sometimes when we use insider terms, it can make it difficult for our clients to understand EXACTLY what we’re discussing. Asset allocation is one of those industry terms.

The Definition of Asset Allocation

Asset allocation is simply an approach to investments. This approach balances the risk and rewards of all sorts of investment choices by considering each client’s financial situation and goals.

These include: 

(1) Your Personal Financial Goals

We start by asking what you want to achieve financially. We talk about how much you are able to save or invest in order to meet those goals. We also talk about how much time you have to meet your goals. How far off is your child’s college career? How close are you to your desired retirement age?

(2) Your Emotional, Fiscal and Chronological Ability to Tolerate Risk

For some people, even low-risk investments keep them up at night. These people may need very low-risk or guaranteed products. Inching closer to your retirement age also changes your risk profile. Some clients may have the time or the assets to explore high-risk, high-reward investments. Each person’s risk profile is a little different, and we use that profile to help us recommend a plan that’s right for you.

(3) The State of the Market, and its Associated Risks and Rewards

The state of the economy and the market plays a big role in evaluating risk. Financial planners are constantly re-evaluating funds and investments based on a global view of the market. We must think through all the market realities that may affect your ability to meet your goals, like market corrections, or the economy, or global financial considerations. After all, we don’t want to build a plan that can only succeed in optimal economic conditions.

Once we’ve worked through these three areas, we’ll prepare a plan that combines investments (assets) in a way that makes the most sense for you (allocated). If you want to find out more about how we can help you develop a plan to help you meet your financial goals, contact us at mark@mirusfinancialpartners.com.

It’s important to remember that asset allocation is an investment strategy that will not guarantee a profit or protect you from loss.