| Portfolio diversification determines the asset classes | | | | Understandably, navigating the financial realm may |
| that you will use and the extent to which you would | | | | require guidance for many people or are unwilling or |
| use them. It does not necessarily mean having | | | | unable to do it all on their own. This is where a |
| different accounts of the same type with various | | | | financial professional comes in. The role of this |
| financial institutions. However, this can be a prudent | | | | individual is to guide you through the financial planning |
| method of diversifying your portfolio within an asset | | | | process and not necessarily construct a fine plan in |
| class. For example, you can invest in the financial | | | | your absence. However, there are many people |
| sector and energy sector within the growth options. | | | | posing as financial advisors without being qualified to |
| Diversification is a risk-management strategy that | | | | do so (think unqualified insurance agents). |
| seeks to address the risk-return trade-off that | | | | Another problem is that some qualified persons may |
| investors face. | | | | be untrustworthy or self-serving. There would be |
| The fact that there is a risk-return trade-off | | | | some choices to make in getting a professional that |
| validates the diversification strategy. The main idea is | | | | you could trust with your personal information and |
| not always to maximize returns on each investment, | | | | helping you make key decisions of great |
| but for each investment to have a return that is | | | | consequence. To make your choices even easier |
| commensurate to the risk of financial loss. How you | | | | from this point, find the answers to the following |
| manage risk would depend primarily on your life | | | | questions:a) What am I looking for in a financial |
| stage. Older investors, for example, will place more | | | | adviser? (This would help you choose someone best |
| emphasis on income and cash options while younger | | | | qualified to help you with your unique |
| investors would have a longer investment period that | | | | circumstances).b) What qualification should my adviser |
| would facilitate use of growth options. There is no | | | | have? (CFP, ChFC, CRPC or CPA should be some of |
| set formula for determining allocation over the three | | | | the letters that you look for)c) How is this person |
| main accumulation groups. However, you should | | | | paid? (The main options are flat fees, commissions or |
| ensure that your cash options can cover your | | | | asset-based fees.)d) Am I truly comfortable with this |
| emergency funds and short-term savings goals. | | | | person? |
| Income options would be utilized for your | | | | Conclusion |
| medium-term goals and growth-options for periods | | | | To recap, you should establish you financial goals, |
| that span ten years or more. This would be allocating | | | | aspirations and priorities. Then you should use the |
| by using target percentages- investing a certain | | | | financial pyramid concept to build your financial plan. In |
| percentage in growth, income and cash options. Even | | | | so doing, you would also undertake the various |
| though you can keep a diversified portfolio within | | | | activities highlighted in the introduction. Once you |
| asset classes or between asset classes, it is vital to | | | | have covered the base of the pyramid, your focus |
| evaluate you asset allocation continually according to | | | | should be on portfolio diversification where your |
| your liquidity needs, goals and life stage. | | | | accumulation products are concerned. |
| Financial advice - Why, from whom and how? | | | | |