Baryshnya

Asset allocation refers to how an investor distributes his investment among the various investment options such as bonds, stocks and derivatives. Asset allocation is largely determined by the person’s personality, his/her goals and their timeframes. Stock markets are characterized by two phenomenon, they are inherently an unpredictable entity whose movements have been liked to a drunkard’s effort to find his way back home (random walk theory). Another is that they are extremely volatile, in fact more volatile than what they are generally acknowledged by financial theories. The outcome is that, mutual funds are not in a position to beat the market and the best shield against volatility is diversification. The ultimate safeguard would be the purchase of index funds or ETFs. This makes the choice of allocation of funds across the available categories/sub categories a vital decision. The commonly invested categories are CashStocks BondsIndex-lined fundsDerivativesSpecialistCommodities Index investing is the safest method of taking advantage of market growth but it can seem a bit bland. You can add a bit of spice in your portfolio by some direct investment in personal choices, just make sure you don’t out too much money in a handful few stocks.