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Asset Allocation Categories

Investing

To evaluate investments and determine potential returns and investment risk, investments are broken down into fundamental categories or allocations.

There are an unlimited number of possibilities for investment allocation. Currently I use 3 main categories:

  • Cash
  • Bonds
  • Stocks

These main categories then are broken down into sectors making a total of 10 different asset allocations as follows:

Cash - Bank accounts or certificates of deposit, which are insured by the Federal Deposit Insurance Corporation up to a limit per account

Bonds - Bonds are either domestic (U.S.) or global debt securities issued by private corporations or governments.

  • Short Term Bonds - Bonds that have an approximate term to maturity of 1 to 5 years;
  • Intermediate Bonds - Bonds that have an approximate term to maturity of 5 to 10 years
  • Long Term Bonds - Bonds that have an approximate term to maturity greater than 10 years.

Stocks - Stocks are equity securities of domestic and foreign corporations. Domestic stocks are equity securities of U.S. corporations. International stocks are equity securities of foreign corporations.

  • Large Cap Value Stocks-Companies with over $5 billion in outstanding market value shares.  Price per share value is based on historic cost principle and per-share dividend earnings rather than future growth projections.
  • Large Cap Growth Stocks-Companies with over $5 billion in outstanding market value shares.  Price per share value is based on future growth projection rather than historic cost principle.
  • Mid Cap Stocks-Companies that have between $500 million and $5 billion in outstanding market value shares.
  • Small Cap Stocks-Companies that have less than $500 million in outstanding market value shares.
  • International Developed Stocks-Equity securities from foreign (non-US) corporations in developed countries
  • International Emerging Stocks-Equity securities from foreign (non-US) corporations in less developed countries with emerging economies that may be characterized by lower income per capita, less developed infrastructure and very new capital markets

The process of determining the correct asset allocation for your investment goals can be complex and confusing.  If you don't know your current asset allocation categories, you should ask your investment advisor or contact me for a review of your investments.