Often, they're not sure they've made the right investments or are receiving the highest possible return. In short, these people know they need to do some basic personal financial planning and review. Financial experts agree that a strong and successful investment program usually is founded on sound investment principles and reflects your personal needs and objectives. One sound strategic approach to structuring a successful portfolio is called asset allocation. Simply stated, this strategy focuses on establishing diversification that is consistent with your personal investment needs and risk tolerance.
Risk tolerance is perhaps the most important factor in the asset allocation process.
Conversely, a greater risk tolerance may mean that you'll favor more equity orientation in the portfolio, along with a willingness to accept more volatility in return for potentially hig her returns. In addition to your risk tolerance and investment objectives, other personal factors that should be closely examined when building your portfolio include your age, cash flow, portfolio income needs and your tax bracket. In terms of the asset allocation process, age is significant because it impacts the type of investment strategies you may wish to consider. As an example, an older investor may be more concerned with safety and income in his portfolio. On the other hand, this same investor may wish to protect his portfolio against the eroding power of inflation, and therefore may be interested in growth-oriented investments.