Since you’re investing by yourself, you’re the one responsible for your portfolio’s
asset allocation
and
diversification.
No one else will purchase bonds or hold assets in cash while you concentrate on stocks or stock mutual funds. Similarly, you’re the one who decides how much investment risk to take and when to reallocate your portfolio.
But the underlying principles of investing remain the same whether you’re investing on your own or through a joint account.
It’s not a good idea to put all of your money into one stock or one piece of real estate. Instead, you’ll want to find ways to spread your capital among many investments. That means not only purchasing a mix of
asset classes,
including stocks, bonds, and mutual funds, but also buying stock in different industries and with different
market capitalizations,
as well as bonds with different
issuers
and different terms.
Why allocate?
Some investments are most effective over the long term, while others are best held for only a few years. You’ll need to allocate your assets so that your investments are matched to the different goals you have, whether you need money soon or you have time to weather the ups and downs of the market. Asset allocation provides the opportunity to limit risk while not significantly reducing potential return because different types of investments tend to prosper and to retreat in different markets. When stocks are providing a strong return, bonds usually do less well. But when the stock market is in a slump, bonds tend to outperform them. Putting your money in both asset classes has a tendency to reduce your portfolio’s volatility, no matter which way the market is headed.
