| of the wealthiest people in the world owe their | | | | wish to employ a more aggressive strategy |
| fortunes to different types of residual income | | | | where only 40% of assets are in security and |
| – from stocks and bonds to investment | | | | 30% are held each in buy/hold and speculative |
| trusts, real estate, commodities and more. In this | | | | investments. Again, your personal circumstances, |
| chapter we’re going to discuss the | | | | preference to risk and other influencing factors |
| importance of asset allocation – how you | | | | should be considered before arriving at your |
| spread your assets into different types of | | | | personal asset allocation numbers. |
| products (from safe to speculative). | | | | Your Investment Plan – The Most |
| When we talk about asset allocation we refer to | | | | Important Thing To Create Before You Risk Even |
| the various vehicles in which we invest our cash. | | | | One Penny In The Markets. |
| We can split our assets into three specific classes | | | | One of my online businesses helps provide |
| – security, buy/hold and speculative. It is | | | | information and products to help other people |
| advised that the largest chunk of your assets | | | | set-up their own dot com businesses. One of the |
| should fall into the security (approx 70%) bucket | | | | first things I advise my clients is to create a plan |
| and this includes assets such as cash, ISAs, | | | | for their business. A plan puts all those thoughts in |
| pension funds, home of residence, safe bonds and | | | | your head together, combines then with practical |
| government securities. These are the safest of | | | | facts & figures and gives them a blueprint to |
| assets. | | | | get to exactly where they want to be in a |
| The next type of asset class is the “buy | | | | structured and efficient way. |
| & hold” variety – these tend | | | | You’ve heard the motto, if you fail to |
| to be longer term investments that are generally | | | | plan, you plan to fail! This applies as much (if not |
| safe. Assets in this class include buy & hold | | | | more) to investments as it does to anything else |
| stocks/mutual funds and investment real estate. | | | | in the world. |
| This type of asset is generally solid with the | | | | Here are just a small sample of things that your |
| stocks being of high pedigree with sound | | | | personal investment plan should highlight: |
| fundamentals that promise much for the future. | | | | 1. What amount of money you have available to |
| The buy & hold chunk of your total assets | | | | invest and how this sum will be allocated within |
| should include approximately 15% of your entire | | | | each different asset class. |
| assets. | | | | 2. How will you find suitable investments? Will you |
| Finally, we come to the speculative class of | | | | learn about them yourself or will you seek out |
| assets – these are higher risk products | | | | professional advice (for example brokers or follow |
| that you jump in and out of quickly for short | | | | investment gurus). |
| term financial gains. These include stocks that you | | | | 3. How you will cope psychologically when your |
| trade actively (jumping in and out within a few | | | | investments turn against you. The market moves |
| days/weeks), IPOs, options & futures, | | | | heavily on psychology and how you react to |
| warrants and some of the more speculative | | | | situations can be the difference between winning |
| mutual funds. | | | | and losing. |
| Before you decide to enter into stock investment | | | | 4. A more detailed plan should be created for |
| it is worth drawing up a plan so that you can set | | | | each investment outlining the reason for the |
| your own rules about your asset allocation (and | | | | investments, as well as an entry and exit |
| discover where you are right now). Ultimately, | | | | strategy. |
| The 70/15/15 rule to asset allocation will depend | | | | To try and start investing without a clear plan is |
| upon the individual investor, their risk tolerance | | | | asking for trouble. |
| and their mindset. You can adjust the numbers to | | | | Remember - before you even look at an |
| more closely match your attitude towards risk. | | | | investment report, you MUST decide how your |
| Many experts believe that the asset allocation | | | | wealth will be allocated and then draw up a long |
| proportions should vary according to the investors | | | | term investment plan that's right for you. |
| age. For example those aged 40 or below may | | | | |