Key Takeaways
- There are numerous ways and places a person can invest their money.
- Asset allocation across many areas is key.
- The assets you choose will depend on your particular circumstances.
Have you ever hosted a dinner for people with a variety of dietary requirements? One person’s a vegetarian, another eats only gluten-free foods, one is avoiding dairy, and one will eat just about anything. When this happens, you handle it by going to the grocery store and buying a variety of foods. You want to meet the pallets and food requirements of all your guests to help ensure their needs are met and that they have an enjoyable experience.
This is analogous to something called asset allocation. When it comes to your money, you want to make sure you’re allocating across many things. You’ll want to avoid putting it all in one place, such as cryptocurrency or the latest stock craze that everyone seems to be buying at any given moment.
So what does asset allocation mean? Well, there are a lot of different areas where you can invest and they include:
- Equity investments, which are real estate – you might own a home or own investment real estate
- Stocks, of which there are many different types. And when it comes to stocks, you want a variety: big companies, small companies, domestic companies, international companies, developing nations’ companies, and so forth.
- Debt-type assets, such as a mortgage
- Government-issued bonds, treasury bills, treasury notes, treasury bonds, corporation-issued bonds, municipality-issued bonds (which tend to be tax free from a federal standpoint)
- Cash and cash equivalents, such as checking accounts, savings accounts, and money market accounts
- Annuities and cash value life insurance
How and where you invest is going to depend on your particular needs. Your circumstances, your cash flow, your balance sheet, your lifestyle, and your propensity for risk are all factors that need to be taken into consideration to determine your individual smorgasbord of assets.
Just remember to allocate in a variety of areas, so you don’t get caught up in one thing that could drop and cause you to lose your principle investment. By choosing a variety, you’ll at least be in the major market areas so that, over time, you’re moving forward, which is the most important aspect of investment management. It’s not about getting the one exact right stock or bond, but having a good mix to get you to your goals. Until next time, enjoy.
Gary
If you’d like to read more on this topic, here are a few of Gary’s previous posts that you might enjoy:
