- Decide which risk bracket you fall in
- Pick the most suitable investment strategy
Asset allocation is the mix of different assets (like shares, bonds, real estate, gold, commodities and cash) in an investment portfolio. It is an important step for any investor and studies such as Ibbotson and Kaplan (2001) have found asset allocation is very significant to how a portfolio performs.
Deciding on your asset allocation strategy is stage two of portfolio construction and should be done before the third stage which is selecting the funds and shares that you want to own. Stage one is the planning phase: making an honest assessment of your circumstances, needs, personality, objectives and the timeframe for achieving them.