What Is Asset Allocation? The Clear Thinking Short Version: Thinking About Investing, #4
By Mel Clark
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About this ebook
Have you heard of "asset allocation" and wondered what financial magic was hidden behind the buzzwords?
Are you looking for a simple investing system that's relatively safe? Knowing that there is no such thing as a "sure thing"?
"What Is Asset Allocation" goes behind the magic and presents enough detail for you to understand what it is and how to do it without getting bogged down in math and financial "theory".
Read this booklet and "go forth and multiply your money".
Mel Clark
Mel Clark writes about personal finance, retirement planning, and martial arts. His blue-collar union family parents raised him and his two sisters in a wonderful environment for children. However, the family was always in debt, always making payments, and never saving. As a result, Mel feels called to share hard-won money lessons with working folks. He wants them to understand they can benefit from saving and investing. They don’t have to be rich to achieve financial independence. He and his lovely wife Linda live near Virginia’s Blue Ridge Parkway. They enjoy ballroom dancing, the occasional camping trip and a silly game called Bananagrams. Mel is graduate of the United States Military Academy at West Point and the Darden School of Business at the University of Virginia.
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What Is Asset Allocation? The Clear Thinking Short Version - Mel Clark
What is Asset Allocation?
Asset Allocation is a very simple concept.
You decide what things you want to invest in and how much of your money you want to spend on each thing. The decision is usually framed as a percentage of the total amount of money you want to invest.
Why is this a thing
and why should you care? Briefly, because it has been shown that a diversified portfolio of uncorrelated (or poorly correlated) assets outperforms (earns more money) than any single investment. And, it accomplishes this with less risk.
Buzzwords:
1) Allocation is used to mean the percentage you choose to commit to each asset class or to each individual investment vehicle (asset).
2) Diversified means you choose a group of things that are not alike.
3) Portfolio means the group of things you chose.
4) Correlated describes how well the prices of the different things go up or down together.
5) Poorly Correlated means their prices move in the same direction but at noticeably different speeds.
6) Uncorrelated means their prices move independently from one another. In this booklet, I will use uncorrelated
to mean either Poorly Correlated or Uncorrelated.
7) Inversely Correlated means when one thing goes up the other