Essay on Asset Allocation For The Absolute Beginner
We are addressing here the beginning investor, and present a plan for beginning to invest in the stock market. We do not cover sophisticated asset switching strategies related to market timing, or consider the more complex asset categories such as precious metals, futures, currencies, or collectibles. We merely present a framework for the beginning investor to consider their investment and asset allocation among available choices.
Before considering investing in stocks, each person needs to ask the following questions.
How secure is my job or other sources of income, such as my spouse 's job?
How stable is my health and that of my family?
What immediate (zero to two years) financial needs are expected? Do I want to buy a house, retirement home, or need money for education?
What short term (two to five year) financial needs do I have?
What are my current or expected living expenses? How much money do we spend every month just to maintain our current lifestyle?
What are my long term financial goals? When will I need money for my children 's college education or to care for a sick parent? How soon until I retire?
Before embarking on an investment program, the following issues and guidelines are what we consider extremely basic.
You should have a minimum of three months living expenses in a secure, short term, highly liquid investment. This is money that you may need if you are injured and…