Online Investing For Dummies, 10th Edition

Chapter 9

Choosing an Asset Allocation

IN THIS CHAPTER

Seeing what an asset allocation is and how it can improve your success

Deciding what kind of asset allocation is right for you

Creating a custom index to track your asset allocation’s success

Using online tools to choose the right asset allocation

You wouldn’t sail a ship without a map or bake a cake without a recipe, but so many online investors do the equivalent when they buy and sell stocks and other assets without understanding how they fit into a broader plan. That plan, in investment language, is called an asset allocation. Your asset allocation determines how much of your portfolio is placed into different types of asset classes, or types of investments — typically stocks, bonds, and cash. By following this plan, you can make sure that you get the maximum return for the amount of risk you’re taking. One controversial study claims that more than 90 percent of a portfolio’s swings, on average, are due to the asset allocation.

In this chapter, I show you how a well-designed asset allocation plan can improve your success investing ...