Suggested Asset Allocation For 23.7% Return From Stock Market Investment

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Less than 0.8% individual investors have effective asset allocation for their investment. And 97.9% of novice investors don’t even know how to allocate their cash prior to investing in stock market. In this article, I’m going to share with you the suggested asset allocation that I used myself for your own references.

I bet you must have heard someone saying “invest only with money that you can afford to lose”. At least, this is what I’m always saying to myself and to all my loyal readers. Nevertheless, when I said so, many reply back to “how much exactly?”. They are hoping some figure or percentage that they can start applying in their cash management. So here we go,

Easy Money for Medium to High Risk Investment

First of all, high risk investment is highly subjective to individual risk tolerance. Something risky for me might not be risky to you at all. It’s depend on your knowledge, skills and experience when dealing with such opportunities. And of course how confident are you dealing with external factors that are beyond your control; such as market volatility and commodity uncertainties.

But for me, medium to short term trading are considered as medium to high risk investment. And therefore, I personally allocate “easy money” for this activity. Easy money includes but not limited to bonuses from your employer, gratuity after you retire, or dividends from existing investment. With money that I can afford to lose, I can trade stocks with emotionally detached.

40% Cash for Low Risk Investment

You might want to apply this suggested asset allocation since you can comfortably put most of your hard earned money into something that you have faith in it. And to me, I consider buying great stocks at cheap price as the lowest risk investment ever. This is just like buying Berkshire Hathaway shares at only $10,000.

Isn’t that a no brainer investment decision?

However, the challenges are finding good stocks and have patient not to buy them unless the share prices are “cheap enough”. You can do this by first identifying potential stocks that worth investing. After you have shortlisted them all, try to determine how much each stock worth by calculating its intrinsic value. Then, buy the stocks once the share prices are within the margin of safety. After all, this is what Warren Buffet did all this while.

40% Cash Reserve to Further Diversify

If you are thinking of putting all of your hard earned money into stock market, think again. The fact is, limiting your investment in one asset classes alone; such as stock market only, can bring disaster. No matter how good your investing skills and how much you have diversify your money into different stocks across various industries, I found it just not good enough.

Consider diversifying into other asset classes such as real estate or maybe building your own businesses as well.

I prefer buying high end properties than others since that market segment seems to be less susceptible to economic condition. Real estate investment is a good platform for you to understand how businesses works, especially your negotiation skills. Slowly, I venture into some other businesses to increase my return on investment. From such activities, I have better understanding on which stocks to invest.