SeniorSite.com For The Young At Heart And Healthstyle Smart  
Seniors,adult,mature,senior,boomers,mature,chat,chat room,seniors
Home Free Chat Find A Friend HealthStyle Health Finance Retirement Sex Singles Long Term Care About Us
SeniorSite.com - For The Young At Heart And HealthStyle Smart
SeniorSite.com - For The Young At Heart And HealthStyle Smart
SeniorSite.com - Seniors,adult,mature,senior,boomers,mature,chat,chat room,seniors
Asset Allocation Portfolio Diversification For Seniors

An important objective of asset allocation is diversification. Diversification is akin to not putting all your eggs in one basket. Lots of academic research shows that a diversified portfolio reduces risk for a given rate of return.

A diversified portfolio does not concentrate in one or two investment categories. Instead, it includes some investments whose returns zig while the returns of other investments zag. The net effect is lower volatility in returns.

An example of a concentrated portfolio is one that is invested entirely in technology stocks. Sure, having a lot of tech "exposure" seemed like a wise strategy when the tech-heavy NASDAQ was posting annual gains of well over 20% in the late 1990s. However, when the tech bubble burst in early 2000, investors holding tech-heavy portfolios took a drubbing that they've yet to recover from.

There are different ways to diversify a portfolio. One way is to start by allocating a target percentage of your total investment portfolio to stocks, bonds and cash. To help you, brokerages typically publish their recommended allocations.

For example, An investor with a shorter investment horizon would be more cautious. They might decide to allocate 60% to stocks, 30% to bonds and 10% to cash.

At the next stage, you may decide to allocate to various investment categories within each major asset class. For example, the aggressive investor may allocate half of their stock allocation to each growth and income funds. The conservative investor may decide to allocate half of their bond allocation to each government and muni bond funds.

Successfully diversifying your portfolio means investing in securities whose investment returns do not move together. That's what investing in different asset classes helps to accomplish. To diversify, you'll want to invest in securities whose returns on such securities have low or negative correlation.

The correlation coefficient is used to measure the degree that the returns of two securities are related. Two stocks whose returns move together in lockstep have a coefficient of +1.0. Two stocks whose returns move in exactly the opposite directions have a correlation of -1.0. To effectively diversify, you should aim to find investments that have a low positive correlation, zero correlation or negative correlation.

A more widely available measure, beta, can be used to help achieve a diversified portfolio. The beta of the stock market index, which represents a fully diversified portfolio, is 1.0. A stock's beta of 1.0 signifies that its price changes in lockstep with price changes in the market index. A beta of 1.2 signifies that the stock price moves 1.2 times as much as the market index in the same direction. A diversified portfolio has a beta of 1.0, similar to the beta of the market index.

As the number of securities in your portfolio increases, you reach a point where you've likely diversified as much as you possibly can. This point represents a fully diversified portfolio. Financial experts vary in their views on how many securities it takes to achieve a fully diversified portfolio. Some professionals say this number is 10 to 20 securities, while others say it is closer to 30 securities.

Whether you build a portfolio of 10 or 30 securities, you still incur transaction costs such as brokerage fees to buy the securities. For example, if the average trade costs $30, building a 10-stock portfolio would cost $300 in commissions.

Mutual funds can often provide greater diversification at a lower cost than buying individual securities. You can often buy shares of a no-load mutual fund directly from the fund or a brokerage firm.

Keep in mind that mutual funds generally require an initial investment of $1,000 to $2,500. (You can usually make additional investments of as little as $25.) The Web site of the Investment Company Institute (www.ici.org) keeps a list of mutual funds and their toll-free numbers.

Mutual funds often concentrate their portfolios in one investment category. As a result, you still need to allocate among a few mutual funds to gain the full benefits of diversification.

An alternative to investing in an actively managed mutual fund is to invest in an index fund. An index fund mimics the performance of the index it is named for because its portfolio composition is identical to the index. Index funds have lower expenses than actively managed funds since they trade less frequently and require less research and portfolio administration.

This information should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.

Struggling with debt

Chat and meet new friends at Senior Site Chat

Let us help you get out of debt

Senior,Seniors,Senior Citizen,Seniors,Seniors HealthStyle - Mature Healthy Living Lifestyle - SeniorSite.com, boomer,Retirement,Health Care,Long Term Care,Extended Care,Retirement,Nursing Homes,Entertainment site for seniors - 55 years old and over that are still young at heart!
SeniorSite.com - For The Young At Heart And HealthStyle Smart

SeniorSite.com - For The Young At Heart And HealthStyle Smart
To submit Editorial Content, Book Reviews, News and Press Releases send to
SeniorSite.com - For The Young At Heart And HealthStyle Smart

 

Seniors,adult,mature,senior,boomers,mature,chat,chat room,seniors
SeniorSite.com - For The Young At Heart And HealthStyle Smart

 Copyright © 1998 -  2014  SeniorSite.com™, Inc.   All rights reserved.  Copyright Info | Advertisement Info | Contact Info | Terms Of Use | Privacy Policy | Sitemap  | Sitemap Links

   SeniorSite™, SeniorSite.com™, For The Young At Heart™ and HealthStyle™ are trademarks and service marks of SeniorSite.com™, Inc.

 

 

 

 

 

 

 seniors links Jewelry Discount Coupons Personalized Jewelry Discounts Dr Jodee Meddy Dubois PA Jodee Meddy Dubois PA Meddy Dubois PA Dubois PA Dubois Diva Jo Diva jodiva Jodee Meddy Dr Jodee Meddy Jodee Graifman Meddy Jodee Graifman