Asset allocation is basically, well, how you allocate your assets. But what does that really mean, and why is it so important? There is more to divvying up your investments than chance or sticking to one formula.

“I’ve always emphasized the importance of diversifying your portfolio,” said Richard Cayne of Meyer International. “That is the essence of asset allocation — matching your risk aversion with the right investment ratio. But, as with many things in life, it’s not as simple as it sounds.”

Spread wealth and risk with asset allocation

Over many articles, we have mentioned how important it is to diversify and to be aware of your risk appetite. These concepts are part of the foundation for your asset allocation, along with establishing your investment goals.

Once you know what you need, when you need, and what you’re comfortable with, you can look at the different classes of assets. They can be generally categorized as securities, fixed income, cash, real estate, movable property, and so on. While certain assets, such as securities, may inherently riskier than others, such as fixed income, each group also represent a wide range of risk.

You’ll need to weigh your risk appetite against your goals to determine what proportion of your investment you will allocate to what type of asset.

Allocating your assets requires thought

Asset allocation should not be set in stone. It is a fluid strategy that you should review regularly, and more often when you are experiencing significant life changes (new job, marriage, children, etc). You should also consider external changes as well, but you may want some help one that. Financial experts, such as Richard, base their careers on knowing what’s going on in the markets, as new rules, regulations, and products change the investment landscape.

Make sure your assets are allocated properly — contact your trusted advisor for a review.