Allocation Of Assets Can Be Considered A Key To Financial Success

Category: Finance, Financial Planning.

Everyone wants to have more money. Why do people desire money success?

Moreover, people want to achieve that state of financial freedom that describes a level of success that could be described as" financial independence. " Some say that the wealthiest 5% of individuals have more than the 95% put together between them in terms of financial net worth. There are too many reasons to list here. Writing 100 reasons why to decide to be wealthy is a valuable exercise taught in many financial success seminars. Perhaps you could make a list yourself. Allocation of assets can be considered a key to financial success. And what is its cause and effect relationship in the building of wealth and the creation of financial success?

But what exactly is asset allovation? There are are large number of assets that can be invested in. Simply put, an asset is something that probably cost you money and either makes money or increases in value. Firstly lets make the distinction between asset and liability. A liability is something that costs money and decreases in value. Although a motor vehicle is an" asset" in that it has its benefits, in terms of financial key to asset allocation, a car decreases in value and keeps costing you money at the same time( usually, unless it is a classic car for example- but then you wouldn t want to drive it too much to keep the mileage low) .

A car is a good example of a liability. Similarly" toy" such as electronic goods are usually liabilities. The same is true of a successful business. A house can be an asset, because after you buy it, after you have made renovations or improvements along with the historical evidence of supply and demand action in the market, the value can go up. You channel money in to a business first and after establishing the business it can pay for many years to come. With many investment opportunities available to the person with virtually any amount of capital, it is a challenge to find the right opportunity and to correctly allocate financial assets in order for their continued growth and your increasing wealth. Allocation of liquid assets is what we are considering here.

A portfolio of stocks is one possibility. Nowadays there are also managed mutual funds( investment funds) whose managers are professionals at asset allocation in the stock market. For the person with a higher risk appetite and some skill and training in creating a portfolio, managing losses and finding the best stocks, this way has made many an American very wealthy. This is lower risk than individual stock investing, but still carries a risk. Trading the foreign exchange market is a possibility also( forex) again with high risk associated and industry warnings attached. Some funds have very good returns, but it is worth always looking at the performance in the long term( ie 5- 10 years) and many other factors, such as manager s historical performance, sector and country etc. "Always consult your financial advisor before taking a decision" is the forewarning when mentioning anything like this, and applies here to. The advantage of funds over a stock portfolio is that you get automatic diversification within the portfolio but without having to do the research on each of the companies yourself.

Online information is quite good and often free if you look in the right places for fund performance histories, portfolios and management. Instead you are delegating a professional money manager to do that for you. A lower risk alternative to stock markets are the market in government bonds. A bond will pay a fixed return over a time( long term) . Over the long term, bonds do not compare so highly to equities markets as regards to returns. Diversification is key. The chances are that if you spread your investment, there will be more likelihood in the event of one investment heading south, that another will either hedge or outperform the unsuccessful in overall profitability.

Starting a business, investing in equities capital markets, real estate and long term safer investments will create balance in your portfolio and help you to achieve financial independence with less stress and worry. Research, professional advice from someone who is practicing what they are preaching as well as keeping a close management eye on your portfolio will hekp identify strengths and weaknesses in the portfolio and allow the investor to change, or increase investment, sell where and when appropriate to do so.