What Does A Balanced Portfolio Look Like

 


A balanced portfolio is one that contains a mix of investments with different levels of risk and return. It should also be diversified across asset classes, such as stocks, bonds, cash and other alternatives. A balanced portfolio typically has an allocation that ranges from conservative to aggressive based on the investor’s goals, time horizon and risk tolerance. The most common approach for constructing a balanced portfolio is to use Modern Portfolio Theory (MPT), which suggests investors create portfolios with assets that are not perfectly correlated in order to reduce their overall risk while still achieving returns above what could be achieved by holding any single asset alone. To illustrate this concept further, consider an example where an investor wants to construct a well-balanced portfolio. To do so, they might consider allocating their assets according to the following breakdown: • 30% stocks • 25% bonds • 20% cash • 15% international securities (such as foreign stocks and bonds) • 10% alternative investments (such as real estate, gold or commodities). This portfolio is well diversified between different asset classes and will provide the investor with a mix of growth potential through stocks while providing some protection from volatility in the other asset classes. The allocation could be adjusted depending on an individual’s risk tolerance and goals. For example, someone who has a longer-term horizon may choose to increase their stock exposure by 5%-10%, whereas someone who is closer to retirement may opt for a more conservative allocation that has a higher percentage of bonds and cash. Overall, investors should aim to create a portfolio that meets their individual needs while still providing the right balance of risk and return. This can be achieved by diversifying across different asset classes and adjusting the allocations based on an investor’s goals and risk tolerance.

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