Allocating Assets for Efficiency

Unless you are a financial thrill-seeker or you have a deadly fear of losing it all, you may want to diversify your investments. Diversification is an effective way to avoid losing money on a bad investment.

Historical analysis of those portfolios having different proportions of cash, bonds, stocks, and other assets reveals that, for a given return, there are optimal mixes of assets that produce different returns with minimal risk. These portfolios are considered to be "efficient" because they take the least amount of risk for a given return.

Once you understand the personal factors that are important to building your investment portfolio, you can begin to choose from the investment choices that best fit your personal criteria. To select investments wisely, you should study how they work, how they interact with other investments, and how to use them to achieve your goals.

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