Make Money Investing in 2011 With Asset Allocation

You can make some wrong decisions in 2011-2012 and still make money investing if you are investing money with a handle on asset allocation. If the worst happens few people can really expect to make money investing, but YOU could with good asset allocation working for you. What’s the worst that could happen?

Investing money in stocks returned about 15% in 2010, bonds earned less than half of that and safe investments paid zip – while investing in gold was worth 30%, silver 84%, oil 15%, with real estate a mixed bag. In 2009, oil was the big winner, having been the big loser in 2008, when gold was on top. Investing money for 2011 and beyond need not be a guessing game. Your best odds to make money investing without speculating is called asset allocation: spreading your money across the various asset classes. By far the simplest way for the average investor to do this is by owning a variety of mutual funds.

Mutual funds exist for investing money in all of the above asset classes and they are designed for average people. Fund management selects the stocks, bonds and other investments and they manage them as a diversified portfolio for their investors as a group. Some funds specialize in areas like real estate and precious metals (like gold and silver). Your job is to do the asset allocation: tell the fund company how much money to invest in which funds. If you spread your money out across the asset classes and you don’t make money investing in 2011, you likely won’t know anyone else who did make money.

I personally divide all investments into just 4 asset classes to keep asset allocation simple. In order from safest to higher risk: safe interest-paying investments, bonds, stocks, and other alternatives like real estate, gold and natural resources like oil. In mutual funds, that translates (in the same risk order as above) to money market, bond, diversified stock, and sector (specialty) funds like real estate, precious metals, and energy or natural resources funds. In large fund families like Vanguard and Fidelity investing money in all of the above can be done by opening just one mutual fund account.

How you do your asset allocation when investing money in funds will depend on the level of risk you are willing to take. But keep in mind that you also lower your overall risk just by diversifying across the 4 asset classes. The asset classes and funds above are basically in order from safest to riskiest, so take that into account in your asset allocation for 2011 and beyond. If you want more safety go heavier in money market funds and shorter-term and intermediate-term bond funds. For more profit potential and risk go heavier into diversified stock funds and spread a lesser amount of money around in real estate, natural resources, energy, and perhaps gold or precious metals funds for 2011-2012.

Over the years investors have made money investing, earned higher than average returns, and lowered their overall risk by diversifying across the asset classes… as losses in one area were often more than offset by gains in another. In the years leading up to 2011, most of the asset classes have tended to move together, which is unusual. Extremely low interest rates, high government debt, and a recent financial crisis with lingering high unemployment have blurred the lines and created much uncertainty. The worst that can happen ranges from instability in interest rates or deflation/inflation, to another financial crisis. In any such case, it will be extremely difficult to make money investing without some sort of strategy in place.

Investing money in 2011 and beyond will involve uncertainty, and asset allocation is your best strategy for hanging in there and avoiding excess risk. Until it’s possible to make money investing in safer investments, you’ve got to spread it around. There are basically only 4 general asset classes. Investing money in mutual funds is the easiest way to cover all the bases.

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