Decoding the Experts: Wealth Management | Decoding Wall St.

One of the cool features to the Decoding Wall St. membership is the opportunity to become a guest contributor, where other members benefit from your financial knowledge and our unique decoding of your financial knowledge.? It?s a powerful one two learning punch for our entire member community.?

Also, if you lack expertise in finance but are hungry to learn, do what one our college bound members did: send us in finance words and phrases not so easily understood and we will decode them!? Have your name plastered all over the place, and learn, not a bad combo.

Below is an excerpt from one our members and wealth management go-to Carleton English.

?We know the adage that 90% of investment returns are a product of asset allocation but what does that mean?? Many people assume asset allocation and diversification are one in the same when in fact diversification is a possible method of asset allocation.? In a previous post, I discussed how to determine your risk tolerance. ?Asset allocation is building a portfolio that matches your risk tolerance with your desired return.?

?Looking to buy a house in a year? ?Your asset allocation may be in cash instruments with relatively low risk and similarly low return to preserve your capital. ?You are employing an allocation strategy that meets your goals despite it not being diversified. ?Do you have a longer time horizon with less defined goals? ?This is when a more diversified portfolio may be part of your strategy. ?Diversifying in loosely correlated asset classes may help over the long haul when one market sector takes a dive. Whatever allocation you choose, it is important to review your portfolio regular to make sure it is still in line with your risk tolerance and goals.?

-Carleton English

Insider phrase #1: ?Asset Allocation?

Decoded: You have X amount of money burning a hole in your pocket to invest.? That cash is an asset, and you want to allocate it to other different assets that make you money (examples being gold, stocks, bonds).? Allocate enough of that cash into many pieces of different assets, and you will what is called by finance peeps as ?diversified portfolio.?

Insider phrase #2: ?Risk tolerance and return relationship?

Decoded: Have aspirations of earning 100% on your investment in some fly by night mining company?? Rest assured that while the payoff could be huge, you must have a willingness to lose it all to net that 100%.? This is known as having a ?high risk tolerance.?

Insider Phrase #3: ?Cash Instruments?

Decoded: Sure do wish a saxophone could be blown and out comes cold, hard cash.? Alas, no go.? A cash instrument is a CD or government bill that is like owning cash because it could be sold quickly to raise some cash.

Insider Phrase #4: ?Loosely Correlated Asset Classes?

Decoded: Owning a home is an asset.? Owning a stock in an oil company is an asset.? If oil prices go up it will unlikely cause the value of your home to drop that day, hence these two assets are loosely correlated.

Reach Carleton on Twitter at @carletonenglish

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