Diversification: The Foundation of Asset Allocation

January 21, 2009

Understanding Diversifiction with Asset Allocation Strategy

Before exploring just how you can put an asset allocation strategy to work to help you meet your investment goals, you should first understand how diversification — the process of helping reduce risk by investing in several different types of individual funds or securities — works hand in hand with asset allocation.

When you diversify your investments among more than one security, you help reduce what is known as “single-security risk,” or the risk that your investment will fluctuate widely in value with the price of one holding. Diversifying among several asset classes increases the chance that, if and when the return of one investment is falling, the return of another in your portfolio may be rising (though there are no guarantees). Neither asset allocation nor diversification guarantee against investment loss.

© LPL Financial, created by Standard & Poors

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.

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Is Asset Allocation for You?

January 19, 2009

What Is Asset Allocation?

Asset allocation refers to the way in which you weight diverse investments in your portfolio in order to try to meet a specific objective. For instance, if your goal is to pursue growth (and you’re willing to take on market risk in order to do so), you may decide to place 20% of your assets in bonds and 80% in stocks.

The asset classes you choose, and how you weight your investment in each, will probably hinge on your investment time frame and how that matches with the risks and rewards of each asset class.

© LPL Financial, created by Standard & Poors

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.


The Fundamental Rules of Smart Investing Haven’t Changed

January 14, 2009

Financial Advice from a MN Financial Advisory Service

First things first: It doesn’t matter if you make your investment decisions online, on the phone, or in a face-to-face meeting with a trusted financial professional– the same time-tested rules of prudent portfolio management apply.

For example, your asset allocation (i.e., your overall mix of investments) should always complement your personal financial priorities and goals. The best way to accomplish that is to leave emotions out of the investment-decision process and stay focused on your well-reasoned objectives and strategies. Instead of blindly following “hot” tips from friends or tantalizing suggestions posted anonymously on Internet message boards, ask yourself the following questions:

Why is this investment appropriate? Does it make sense in light of your risk tolerance, time frame, and financial objectives? How will it affect your portfolio’s asset allocation? If you lack the information to answer such questions, hold off on the transaction until you’ve had a chance to conduct more research. Always be sure to read an investment’s prospectus before you invest.

What type of fees and other expenses does the investment charge to shareholders? How much will it cost you to buy-or sell- shares?

What is the investment’s long-term performace history? If it is an individual security issued by a relatively new company, are you comfortable with the firm’s managment and market strategies? If you’re considering a mutual fund, how does its performance compare with that of comparable funds?

Is the investment “liquid” – i.e., could you sell it easily if the need arose?

© LPL Financial, created by Standard & Poors

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.