To kick off are new miniseries we are going to tackle the topic of asset allocation, which is arguably the most important item when it comes to investing. There are very few things in the world of investing that we can control. You can't control the stock markets or the bond markets performance, what countries and economies are going to do or whether or not a global pandemic is going to occur.
There are however, a few things we can control and it all has to do with managing risk. We can all manage the risk in our own portfolios. We do this by choosing to take on more risk or less risk. That's entirely within our abilities. This starts with making a very important decision: your asset allocation. When you think about being invested in a market, whether it's a stock or a bond market, there are certain risks that are just inherent in being invested in those markets. This is called systematic risk.
Different asset classes, such as stocks and bonds, carry different systematic risks. Stocks for example, may have higher risk or volatility than bonds. Asset allocation allows us to determine how much overall risk we want to take within our portfolio. That’s where we get to decide how much of our portfolio we want to have invested in each asset class, whether it's stocks, bonds, cash or cash equivalents, or other alternative investments.
That is what we suggest people focus on: focus on the things that we can control and then the rest will just happen.
-Stay safe, stay happy, stay well!