Asset Allocation Explained - Index Funds for Beginners

Asset allocation is especially important to understand when we are experiencing market conditions like we are right now. Stock markets have tanked quite a bit and no one knows where we are headed next. In order to not hurt yourself financially, it is crucial that you are invested in the right mix of assets for your own financial plan. You may have heard of Ray Dalio's All Weather portfolio that purportedly performed exceptionally well in down markets.This was fully due to his asset allocation.

In general terms, asset allocation just means deciding how much of each asset class you have in your investment portfolio. But what the heck is an asset class and why does this matter? Well, an asset class is just a type of investment. The most common ones are stocks, bonds, REIT’s, and cash or cash equivalents. In today’s video, we’re just going to focus on stocks and bonds as those are the two main asset classes to consider when building your portfolio.

Stocks are a traditionally high earning investment. They have the highest potential for large returns. But they also are a risky asset class, they have the highest potential for loss. Bonds on the other hand are a low to moderate earning investment. They’ll never be able to post the massive gains that stocks potentially can, but they have much lower risk. Stocks are what allows your portfolio to shoot for the moon and bonds are what makes sure it’s a smooth flight.

If you watched my video on how to assess what level of risk you should take on with your investments then you know that the greater percentage of stocks in your portfolio means the higher chance of a greater return but it also means that your investments will likely be more risky. And you may have even been able to determine your own risk level that works for you. You might have found out, hey, it looks like 80% stocks and 20% bonds is going to work for what I’m comfortable with. Well that’s great because today, we are going to unpack that a bit further and actually dive into some numbers here so you can see how different mixes of stocks and bonds would have performed over the past 25 years. After we analyze this, there’s a lot of really cool lessons you’ll be able to take from it and I promise you’ll feel a lot more knowledgeable and comfortable building your own index fund portfolio.

I’m going to analyze four different mixes of stocks and bonds for you today as if we invested $10,000 in them 25 years ago. And the way we’ll analyze them is by measuring four very important metrics: the average annual return, total return, standard deviation, and lowest one year return.

https://www.vanguardcanada.ca/individual/indv/en/product.html#/fundDetail/etf/portId=9577/assetCode=balanced/?overview

https://www.vanguardcanada.ca/individual/indv/en/product.html#/fundDetail/etf/portId=9578/assetCode=balanced/?overview

https://www.vanguardcanada.ca/individual/indv/en/product.html#/fundDetail/etf/portId=9579/assetCode=balanced/?overview

https://www.vanguardcanada.ca/individual/indv/en/product.html#/fundDetail/etf/portId=9692/assetCode=balanced/?overview

Видео Asset Allocation Explained - Index Funds for Beginners канала Stephen Antonioni