What Options Do I Have For My Portfolio Allocation

Deciding on your [tag]portfolio[/tag] [tag]asset[/tag] [tag]allocation[/tag] can seem overwhelming. “What if I am too conservative and my returns are too low” or, “What if I take too much risk and loose my nest egg?” “Should I invest in stocks, bonds, or money market securities? What about real-estate investment trusts (REITs) or emerging markets?” There are so many choices available!

I’ve laid out some vary basic options that one could choose from in determining their optimal asset allocation.

Let’s define several of the major investments:

• [tag]Large Cap Stocks[/tag] – These are shares issued by large corporations with a [tag]market capitalization[/tag] of $10 billion or greater. The big players like Microsoft ($293 Billion) and Google ($140 Billion) are in this group.

• [tag]Mid Cap Stocks[/tag] – These are shares issued by corporations with a market capitalization between $2 billion and $10 billion. Companies like Rent-A-Center ($2.07 Billion) and Sherwin Williams ($8.57 billion) fall into this category.

• [tag]Small Cap Stocks[/tag] – The last group contains shares issued by corporations with a market capitalization of less than $2 billion. Some companies in this category are Sonic ($1.67 Billion) and Six Flags ($494 Million.)

• [tag]International Securities[/tag] – These are exactly what they sound like, securities from foreign companies. They can be good for diversification, however the risk will most likely be higher. Examples of foreign companies would be Samsung Electronics traded on the KOSPI and Japan Tobacco traded on the Nikkei.

• [tag]Emerging Markets[/tag] – High risk, high return investments in a developing country. Some popular emerging markets are Brazil, and Chile.

• [tag]Bonds[/tag] and other [tag]Fixed Income[/tag] Securities – Debt securities that generally pay the holder a set interest amount at set intervals or at maturity. In addition, the principal is repaid at maturity. These can be safer investments due to the fixed income, however this is still a risk of default by the issuer. Examples of fixed income securities are corporate bonds, U.S. treasury bonds, municipal bonds, long-term certificates of deposit (CDs) or any other debt security with a maturity date greater than 1 year.

• [tag]Money Markets[/tag] – Highly liquid debt securities with a maturity date of less than one year. Examples would include short-term CDs, corporate paper, treasury bills (t-bills) and savings accounts. These are generally safer due to their liquid nature.

• [tag]Real-Estate Investment Trusts[/tag] ([tag]REITs[/tag]) – Investments that are very similar to other equities with the exception that the investor is purchasing ownership is a pool of properties or mortgages rather than a corporation. These have wildly popular due to the incredible returns they’ve had during this last real estate boom.

Personally, I like small cap stocks and REITs. They’re some of the riskier choices, but your portfolio needs some risk until you begin creeping up on retirement.

What are your thoughts? What do you like to invest in and why?

• The 2007 Economic Outlook
• Why Should I Invest In Real Estate?
• 4 Basic Short Term Investments
• My Favorite Articles for the Week of December 18th
• 10 Hottest Real Estate Markets in 2007