To decide what assets and how much of an asset you should own you need to understand asset classes. An asset class is just a term given to a group of investments that have similar features. There are four main asset classes: cash, fixed interest, property and equities (or shares).
Each asset class is expected to have different risk and return characteristics and the right asset mix for you at any given point will depend largely on your time horizon. You need to think how long you will be investing to achieve your financial goals, your risk tolerance and how much you are willing to risk in exchange for return.
Understanding asssets classes and their characteristics can help you make wise investment decisions. The UniSuper website has a detailed look at asset classes.
This video takes you through all you need to know about assets classes and shows you how you need a combination of asset classes to meet your financial goals.
An introduction to diversifying between asset classes including a look at some basic asset allocation models.
Asset allocation is arguably the most important decision you will make with 80% of your returns coming from that decision.
Asset allocation is basically deciding what percentage of investable funds is to be invested in different asset classes and because different asset classes perform differently asset allocation can be the key to determining your overall investment performance.
Ben Carlson from a Wealth of common sense provides some thoughts on asset allocation for young investors.
It is the mix of different types of assets that will mostly determine whether you will reach your goals - use the asset allocation wizard to see which mix of assets might be right for you.
This tool may help you decide on what the right mix of assets is for you given your age, your risk comfort level and your goals.
(Note: this tool is US based but may give you some food for thought!)
While individual stocks can run hot and cold, the correct asset allocation keeps you steered in the right direction for the long-term. This article takes a comprehensive look at asset allocation and provides example asset allocation models for a range of age groups.