The All Season Investor Successful Strategies for Every Stage in the Business Cycle

The cornerstone of any investment strategy is to maximize return while maintaining a tolerable risk. The process of allocating assets among several investment categories is a way of achieving this goal. The level of' 'tolerable'' risk depends on an individual's psychological makeup, financial position, and stage in life. Younger people can assume greater risks than someone who is retired; a highly paid executive will be less dependent on current portfolio income than will a disabled person on workmen's compensation, and so forth. Asset allocation can be handled in two steps. The first decision involves a general review of these financial, psychological, and life stage factors to determine overall investment goals. Is your goal current income, capital appreciation, or an acceptable balance? If you decide on capital appreciation, do you have the personality to ride out major declines in the market, or are you the kind of person who would be better off assuming less risk in order to sleep more peacefully? These are decisions that only you can make after careful consideration. Formulating decisions on these overall investment objectives is known as strategic asset allocation.