Asset Allocation is a Key Investment Strategy for 2014

As another year comes to an end, you can let your hair down and welcome the next year with optimism and exuberance. Stock markets flourished in 2013, whereas bond markets struggled all throughout. Before you head for your favorite getaways, it will be great if you spend some time reading about the investment strategy for 2014. If you have clarity about what investment strategy will augur well for you in the future, you will be able to celebrate the New Year’s Eve with much more frolic.

Asset Allocation and Diversification
Your investment strategy for 2014 will depend to a great extent on asset allocation and diversification, which in turn is dependent on factors such as investment climate, personal goals, and your ability to take risks. Individuals can broadly be distinguished as being risk-averse and risk-takers. It has been seen that your age plays an important role in determining your behavior towards risks. People who are approaching their retirement are usually risk-averse. They prefer to have their money invested in cash and bonds. Middle-aged people and young professionals are known to show risk-taking behavior. This means that they park most of their investments in equities, which promise higher returns than bonds and savings accounts.

Getting the most from your investment entails a mix of risk aversion and risk taking. An investor who shies away from taking even the minor risks might miss out on the handsome returns that stock markets have to offer. On the other hand, an investor who takes risks on an impulse might end up raking huge losses during the times of financial crisis. Therefore, your investment strategy has to be a combination of investments in both equities and bonds.

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