An umbrella definition of allocation will include the split or division of assets and investments between various transactional stakes in a financial portfolio.
Individuals, companies, and governments will allocate a percentage of their overall portfolio to a wide range of different asset classes. These can include bonds, stocks, shares, real estate. Individuals allocate their assets across various classes to ensure a more diversified portfolio, to lower risk and, ideally, increase returns.
Investment allocation is based on the individual percentage of ownership of certain assets. Individuals or investors will receive an equal split on a pro-rata basis. What this means for investors, is that the agreed percentage thereof will be allocated to what they choose.
Think of it as putting all your eggs either in one basket or in different baskets.
Before creating an investment strategy, investors will need to consider the three main asset classes:
Under each of these, investors will find various sub-classes, offering variable risks, capital gains, monetary returns, and market behavior.
Thus, creating an allocation strategy puts the investor in control of where they would like to invest money. There are a wide variety of allocations available and can include, stocks, bonds, real estate, art, minerals, cryptocurrency, savings account, and foreign exchange among others.
Overall, investors look to balance and diversify their portfolios or investment opportunities to have various streams of financial income.
Each allocation strategy will be different. Here is an example of asset allocation for individuals planning to retire in 10 years:
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