What is Asset Allocation?
The meaning of asset allocation.
What is asset allocation?
To put it simply, asset allocation is dividing your investments among different assets such as shares, cash, bonds, property, crypto, etc.
A common rule that investors use is the Rule of 100. The rule states that investors should subtract their age from 100 and take the resulting number as an idea of how much of their investments should be allocated towards shares.
For example, Thembi is 27 years old. 100 - 27 is 73. This means Thembi can consider allocating 73% of his money towards shares and allocate the rest to other asset classes such as cash, bonds, or crypto.
Lets learn about asset classes.
Cash is regarded as the least risky asset class however, inflation eats away at the value of cash. Cash can be great for rainy days as it is highly liquid (investors can access cash quickly) and is often used as an emergency fund.
The worlds wealthiest individuals all have one thing in common. They all own shares. Shares are little pieces of a company that anyone can own. Companies do this because it brings in capital (money) which they can use to expand, offer new products, etc.
EasyEquities allows anyone to invest in their favourite shares in South Africa, America, Europe, and Australia for as little as R5!
Real Estate is property. History tells us that property has a very good track record of appreciating (growing in value) over time. People will always need shelter, right?
EasyProperties (available on the EasyEquities platform) allows investors to invest in property for as little as R5, and on top of this, rental dividends are paid out quarterly. This can make for great passive income.
Another way investors can get exposure to property is through Real Estate Investment Trusts (REITs). REITs are listed on stock exchanges just like regular shares. REITs pool investors money together and invest in property. By law, REITs must pay at least 75% of their taxable earnings available for distribution out to investors as dividends. This ensures that income will be received.
Cryptocurrency is the new asset class on the block. The whole idea behind crypto is that it is decentralised. This means that there is no middleman (3rd party) needed such as banks or other services such as PayPal.
Many people believe that crypto is the future of finance, however, it is still early days and investors should understand the risks involved. The best way investors can get exposure to crypto is through EasyCrypto (available on the EasyEquities platform).
The EC10 bundle includes the top 10 cryptocurrencies by market cap. This ensures that, no matter what, investors will always own the top 10 cryptocurrencies.