Most people who decide to purchase stocks, bonds, mutual funds, or other investment vehicles do so understanding that there are risks associated with investing, but believing that the potential growth they may realize over time outweighs such risks. However, because there are no guarantees, investing assets can be a nerve-wracking experience – especially during periods of market turbulence.[i]
Taking a deliberate approach to financial asset management and working with a financial professional, rather than choosing to manage your own portfolio, may help you weather the ups and downs that come with investing.[ii] This, in turn, may make it easier to stay the course over the long run.
Understanding the Elements of Financial Asset Management
Financial asset management encompasses several concepts, including diversification, asset allocation, portfolio rebalancing, and the decisions that go into choosing and evaluating the performance of your investments.[iii] Let’s explore each of these individually:
- Diversification. You have likely heard the adage “don’t put all of your eggs in one basket.” The idea of diversifying your investment portfolio, which is a central tenet to financial asset management, is based on the idea of spreading risk by putting your investment dollars into multiple baskets. There is no one-size-fits-all strategy for how to diversify your portfolio. For one investor, a well-diversified portfolio may include just a handful of investments. For another, a portfolio with dozens of securities may be best.[iv] There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
- Asset Allocation. While diversification refers to investing in more than one security, asset allocation is a deliberate approach to diversifying, investing a certain percentage of your overall portfolio into a number of different categories or asset classes, such as equity (stocks), fixed income (bonds), cash or cash equivalents, real estate, and more. Asset classes are often further broken down by type, such as international equity, small-, mid-, and large-cap equity, etc. The right mix of asset classes, and the percentage of your portfolio invested in each, should be based on several factors including your time horizon, risk tolerance, investment experience, and ultimate goals.[v] Asset allocation does not ensure a profit or protect against a loss.
- Rebalancing. Implementing an asset allocation plan tailored for you is not something you can do once and then forget about. Over time, the performance of the assets in your portfolio can cause your asset allocation to drift, so that one asset class may have a higher percentage than planned, while another makes up a lower overall percentage.[vi] When you work with a financial professional to manage your financial assets, you may benefit from periodic portfolio rebalancing, designed to bring your investments back into alignment with your goals and circumstances. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
- Evaluating Performance. Finally, financial asset management also involves monitoring investments and evaluating their performance against market indices or other benchmarks. Financial professionals use various tools and systems designed to look at yield, rate of return, transaction fees, and more, to help identify potential opportunities.[vii] This goes hand-in-hand with diversification, asset allocation, and periodic portfolio rebalancing.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
[i] https://www.investopedia.com/articles/stocks/11/calculating-risk-reward.asp
[ii] https://www.cnbc.com/2020/12/04/the-stock-markets-year-shows-why-staying-invested-pays-off-.html
[iii] https://www.nerdwallet.com/blog/investing/what-is-portfolio-management/
[iv] https://www.finra.org/investors/learn-to-invest/key-investing-concepts/diversifying-your-portfolio
[v] https://www.finra.org/investors/learn-to-invest/key-investing-concepts/asset-allocation
[vi] https://www.finra.org/investors/learn-to-invest/key-investing-concepts/rebalancing-your-portfolio
[viii] https://money.usnews.com/financial-advisors/articles/should-i-get-a-financial-advisor
Sources:
https://money.usnews.com/financial-advisors/articles/should-i-get-a-financial-advisor
https://www.nerdwallet.com/blog/investing/what-is-portfolio-management
https://www.finra.org/investors/learn-to-invest/key-investing-concepts/diversifying-your-portfolio
https://www.finra.org/investors/learn-to-invest/key-investing-concepts/asset-allocation
https://www.finra.org/investors/learn-to-invest/key-investing-concepts/rebalancing-your-portfolio
https://www.cnbc.com/2020/12/04/the-stock-markets-year-shows-why-staying-invested-pays-off-.html
https://www.investopedia.com/articles/stocks/11/calculating-risk-reward.asp
Content Provider: WriterAccess
LPL Tracking 01-05096138
Check the background of your financial professional on FINRA’s BrokerCheck.
The financial consultants of Logix Financial Services are registered representatives with, and Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker/dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Logix Federal Credit Union (LFCU) and Logix Financial Services are not registered as a broker/dealer or investment advisor. Registered representatives of LPL offer products and services using the name Logix Financial Services, and may also be employees of LFCU. These products and services are being offered through LPL or its affiliates, which are separate entities from and not affiliates of LFCU or Logix Financial Services. Securities and insurance offered through LPL or its affiliates are:
| Not Insured by NCUA or Any Other Government Agency | Not Credit Union Guaranteed |
| Not Credit Union Deposits or Obligations | May Lose Value |
The LPL Financial registered representatives associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.
Logix Federal Credit Union provides referrals to financial professionals of LPL Financial LLC (“LPL”) pursuant to an agreement that allows LPL to pay the Financial Institution for these referrals. This creates an incentive for the Financial Institution to make these referrals, resulting in a conflict of interest. The Financial Institution is not a current client of LPL for brokerage or advisory services. Please visit https://www.lpl.com/disclosures/is-lpl-relationship-disclosure.html for more detailed information.
CA Insurance License #0D64827 Logix Insurance Services
