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How often have you wondered when was the right time to invest? Questioned how best to combine your investments? Deliberated about what securities to pick? Fretted about market volatility? Achieving superior results from your investment portfolio this year will require more than a random mix of investments. You will have to allocate your financial resources effectively and adopt a disciplined investing strategy that includes risk management.
For most investors, this means distributing assets among a variety of investment classes or types, a process known as asset allocation. Asset allocation enables you to develop a personalized, diversified portfolio by strategically combining different holdings in varying proportions.
Interest-rate changes influenced some of those market shifts last year, and according to Robert Natale, portfolio manager for Bear Stearns’ $600 million S&P Stars Fund, the Federal Reserve will probably raise rates once more early this year. Then, if the Fed lowers rates by fall, the value of future stock earnings will go up, and so will stock prices. For the long-term, Natale foresees fairly healthy corporate earnings with double-digit growth over the next nine to 12 months.
While these and many other changes may occur in the market and throughout the investment industry, several asset classes will continue to form the basic building blocks of most asset-allocation plans oriented toward keeping risk in check. These include domestic stocks and bonds, global stocks and bonds, and cash or cash equivalents.
The pie-chart models are examples of asset allocations in portfolios with balanced, income, growth and principal-preservation objectives, and can be personalized according to your current investment strategy.