Asset Allocation

The term Asset Allocation refers to an investment strategy that is designed to ascertain the anticipated return versus the inherent risks. Using this strategy, a certain percentage of the assets are allocated and adjusted with respect to a given investor’s short and long term goals and their threshold for risk. True Asset Allocation is a form of insurance for any investor against the risk of the investment’s loss. In essence, Asset Allocation is an investment strategy in which one diversifies his or her portfolio into categories that may include commodities, stocks, precious metals, and typically real estate. In the real estate realm of Asset Allocation, the investor will typically diversify his or her investments by purchasing or loaning against different types of real property such as residential rentals (apartments or single family homes), commercial buildings (office buildings or industrial), retail properties (such as strip malls or single business locations), and warehouses. In the above examples of Asset Allocation, each property would be located in different geographical areas of a given state or country to allocate risk due to an economic down turn in a given locality. The division of one’s assets between various forms of investment ultimately protects investors from incurring a major loss.