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4 Main Objectives of Asset Allocation Models

Perhaps you’ve meant to speak with a financial planner in Saddle Brook, NJ, about asset allocation. This practice involves dividing your resources among various categories that include stocks, mutual funds, bonds, real estate, investment partnerships, private equity, and cash equivalents.



What is an Asset Allocation Model?


An asset allocation model determines the amount of an investor’s total portfolio allocated in each class. Each model is specifically designed to showcase the investor’s risk tolerance and personal goals.


What are the 4 Main Objectives of Asset Allocation Models?


Capital Preservation


Investors who plan on using their cash within the next twelve months wouldn’t want to risk losing a small percentage of its principal value for the opportunity of capital gains. For this reason, they use models that are designed explicitly for capital preservation. However, if the return they earn won’t keep pace with inflation, their purchasing power erodes in actual terms.


Income


Investment-grade, fixed-income obligations of profitable corporations, REITs, shares of blue-chip companies with histories of dividend payments, and treasury notes – these comprise portfolios created to generate income for their owners. Income-oriented investors are usually nearing retirement or widows who can’t risk losing the principal of the lump-sum settlement from their husbands’ life insurance policies. Although they may think that growth is nice, getting enough cash in hand for their living expenses is more important.


Balanced


A balanced portfolio is a midpoint between income and growth allocation models. Investors who seek to strike a healthy balance between current income and long-term growth are into asset allocation for emotional reasons rather than financial. Rather than creating an all-growth portfolio, they prefer to develop a mix of cash-generating assets that appreciate over time with smaller fluctuations in quoted principal value.


Growth


Growth asset allocation models are perfect for investors who are starting their careers and are looking to build long-term wealth. Since they’re actively employed, their assets don’t have to generate current income. Each year, investors deposit additional funds to increase their position.



Looking for a Financial Planner Saddle Brook NJ?


When it comes to financial planning, you can be sure that your safety and security are prioritized by the team of experts at 1879 Advisors. Schedule your free portfolio evaluation today.