A Young Investor’s Guide to Asset Allocation

Asset allocation planning for young professionals

As a young professional, you’ve probably heard the terms asset allocation, risk tolerance, or portfolio management, especially if you’re enrolled in your employer-provided 401 (k) plan. In fact, you may already be making high-risk investments now, but are you proactively managing your portfolio? And if your long-term goals were to change, do you know which assets to rebalance?

To help understand the basics of asset allocation and how you can make the right investments that suit your needs, lifestyle, and financial planning strategy, here’s the answers to some questions you may be wondering.

What is Asset Allocation?

Assets are divided up into different classes, such as stocks, bonds, cash, real estate, and other valuable items. Asset allocation is the process of managing these assets in a portfolio to achieve your savings goals, whether it’s for retirement planning, buying a home, or sending your future child off to college. A healthy portfolio is one that’s diversified and contains a mixture of investments, instead of focusing on only one class.

Why Should I Care About Asset Allocation?

Are you planning to retire in the next 30 to 40 years? Hopefully, the answer is yes, and that means you want to start investing now to save for a comfortable retirement later. Having investments to increase your income after you’ve retired will not only allow you to pay for everyday expenses but also—depending on the types of risk you’ve taken throughout the years—have a bigger retirement nest egg.

When Is the Right Time to Take on Higher Risk Investments?

For a young professional like yourself, now may be the best time to take on riskier investments. At this point in your life, it’s possible you don’t have a mortgage, spouse, or child to include in your financial planning goals, which is why you may find that taking a more aggressive approach to your investments will provide you with a higher return. In fact, it’s recommended that young investors assign a small portion of their portfolio to higher risk investments. 

Asset management is a vital component of your financial planning process. To learn more about asset management or how much capital you should be investing each month, contact Focus Financial today. From providing you direction, oversight, and management of your portfolio, our financial planning advisors will oversee your investment management strategy and guide you towards achieving your goals.

There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values.