General Rule of Thumb: 100 - Your Age = Percentage Investment in Stocks.
Why? Over long periods of time, stocks return more than bonds. On average, stocks have returned 12.00% vs 5% on long-term government bonds (loans > 5 years).
So, the younger you are, the more time you have for the stock market to cycle through upturns and downturns, and allow you to share in historically attractive returns.
Note this is a rule of thumb for long-term investing, and this is exactly why your time horizon matters so much when you think about where to put your money.
Hypothetical $1,000 Asset Allocation for a 30-Year-Old:
Of course, you need to decide if the recommended allocation meshes with your personal risk tolerance and market views.
This recommendation is the same as saying you that yoou should look at your timeline for the investment: the longer you invest, the more time you have to ride out market volatility, so you can increase the amount of riskier assets you hold, such as stocks.
If you want to trade stocks efficiently you should learn the basics of trading. This website will help you out. http://www.stocks-simplified.com
Say, you hold 1,000 shares of Bharti Airtel, 300 shares of Infosys, 500 shares of Reliance Industries and 700 shares of Hindustan Unilever. In order to completely hedge the portfolio, you need to arrive at the total beta value of your holdings. To begin with, get the beta of individual stocks against the index (available in NSE monthly newsletters). Now, multiply individual beta value of stocks to the current value of investment in that stock. Then, divide the sum of all these numbers with the total value of your investment (current) to arrive at the overall beta of your portfolio.
Investment is one of the key methods for increasing wealth. One option to consider is gold, which has been steadily increasing in value and is poised to remain strong on the market. An investment in gold would be a wise choice as the foundation for a solid portfolio. While stocks and bonds may rise and fall, gold is the "gold standard" for investment when considering stability and overall value.
A balanced investment portfolio would include both stocks and bonds as well as cash and mutual fund. The mix would depend on your investment objectives and tolerence for risk. If you had to pick just one investment, it would depend on how liquid you want your funds and how much risk you are willing to take. Stocks are riskier and therefore give a higher expected return in the long term. Also it is important to take into consideration your stage in life, older folks, with little income, should stay conservative and stick to bonds, while younger people can assume more risk.
Stocks! With more workers than ever depending on 401(k)s and other self-directed plans for their retirement, investors have a lot at stake when it comes to optimizing their portfolio. The conventional wisdom is that stocks offer the best chance to maximize returns over the long term, but every significant dip in the market seems to bring fresh doubts. If you'd like to learn strategies of investment or more information on stocks, see the related links section below.
Haim Levy has written: 'Relative effectiveness of efficiency criteria for portfolio selection' -- subject(s): Investments, Mathematical models, Stocks 'Investment and portfolio analysis' -- subject(s): Investment analysis, Portfolio management 'Research in Finance' 'The capital asset pricing model' 'The capital asset pricing model in the 21st century' -- subject(s): Capital assets pricing model, Capital asset pricing model
A diversified portfolio contains a mix of various types of investments, without a great concentration on any one investment type. The main categories include equities (stocks), fixed-income (bonds) and cash. Within each of these categories are subcategories. For example under stocks are included: individual stocks, mutual funds, stock ETF's, foreign stocks, small capitalization, medium caps, large caps. Under fixed-income are included: corporate bonds, government bonds, municipal bonds, convertible bonds, foreign bonds. This mix of investment types is intended to protect the investor from suffering a large loss from being exposed in one type of investment when that investment losses value. Someone can easily paraphrase these strategy by the saying "Don't keep all your eggs in one basket".
You always hear that you should maintain a diversified portfolio. You always hear that you should maintain a balance of stocks and bonds, foreign and domestic securities, safe and aggressive investments. If you’re not a well-seasoned investor, you may have the very best intentions of building such a diversified portfolio but just not know what target you should be aiming for. What percentage of your portfolio should be allocated to stocks and bonds will largely be a factor of your age and, to a lesser extent, your risk tolerance (a portion should be allocated to cash as well but for simplicity’s sake, we’ll just stick to stocks and bonds). The theory goes that the younger you are the more aggressive you’re able to be with you’re investing because you’ll have more time to recover from the periodic highs and lows of the market. So what type of allocation should you have? A very basic investing principle says that you should subtract your age from 100 and that number will be the percent of your portfolio that should be allocated to stocks. It’s a good guideline but you should also consider your willingness to stomach risk in the equation as well. Someone who is 20 years old but absolutely can’t stand seeing any fluctuation in the value of their investments probably shouldn’t have 80% of their portfolio in stocks. Likewise, it’s not all that unusual for someone in their 20s or 30s who’s comfortable with risk to have 100% of their portfolio in stocks. There are a few more guidelines to keep in mind as well. First, no matter what you’re age you should probably always have at least a small percentage (20-30%) of your portfolio in stocks to help stay ahead of inflation. An all-cash portfolio simply won’t provide enough of a return to keep pace with inflation. Second, keep enough cash in your portfolio to handle any short term needs/purchases you have planned like a house down payment, vacation or job loss.
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