Ashley Temer is a Financial Representative with Northwestern Mutual who helps professionals, families, and business owners plan for financial security. She’s here for your “Money Minute.”
You’ve heard the phrase “don’t put all your eggs into one basket.” Essentially it means you shouldn’t focus all your efforts on one thing or one place. In the financial world, this concept is called “asset allocation.” It’s the process of diving your investments among various asset classes like stocks, bonds, cash, and cash alternatives, and other liquid assets. This is important because from one year to the next, you never know what type of investments will do well. All investments carry some level of risk, including the potential loss of all money invested.
Asset allocation can help you spread the risk and should be based on your unique circumstances like goals, timeline, and tolerance for risk. The key is to create a combination of investments that’s right for you while not taking on too much risk or setting yourself up for too little reward.