What is an asset allocation calculator?
An asset allocation calculator is a financial tool that helps you figure out what mix of investments to make to give you the best chance of success give your objectives and/or your tolerance for risk. In other words, it helps you determine how best to “allocate your assets.” That usually means spreading your money across several different types of investments, like stocks, bonds, cash, etc. It could mean investing in different sizes of companies, large (over $10B), mid ($2-$10B), and small cap ($300M-$2B) companies. (‘Cap’ is short for ‘market capitalization,’ or the total value of the issued shares of a publicly traded company.)
With an asset allocation calculator, you give certain information, like how old you are, your current assets & savings, and how risky you consider yourself, and it will spit out certain percentages that represent what amount of money you should put into a given type of investment.
Where can I find a free asset allocation calculator?
Here are a few useful online asset allocation calculators you can use for free:
Why should I use an asset allocation calculator?
Because the real art of investing is knowing how to spread out your risk. If you put all your eggs into one basket, your basket may not be full for long. The smart investor spreads out his or her risk among several different types of investments. Municipal bonds may not pay much in interest, but they do pay, and they are one way to protect or hedge against losses. If anything, an asset allocation calculator could be a useful tool to help you decide how riskier an investor you really are. The older you get, the less risky you become (because theoretically you have more to lose), so use a asset allocation calculator at least once a year to decide if it isn’t time to switch to a more conservative portfolio.
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