What is asset allocation and how to build it?

3d home as form of asset

asset allocation is the process by which capital is distributed for various financial assets


You have capital available and are ready to invest. Perhaps you have already chosen what to invest in and are determined to continue in a very specific direction, or you still have some doubts and are assailed by several questions that you would like to find a valid answer.

Where to start? What to invest in? What is the risk I can take? 

In our blog, we have had the opportunity to repeat many times how investing is an activity that absolutely cannot be performed randomly. In order to invest with awareness, every investor must, in fact, start from a clear and precise definition of the investment strategies .

In particular, the strategic and organizational aspect of the investment activity refers to the concept ofasset allocation . Since this is a fundamental topic in the life of the investor, we have decided to tell you about it in this new blog article.

The meaning of asset allocation and the steps to build it 

The expression asset allocation is made up of two terms which mean respectively “ asset ” and “ allocation ”. Asset allocation is therefore that activity that allows you to distribute your investment capital in multiple tangible and intangible assets and to build a balanced portfolio .

In a nutshell, the purpose of asset allocation is to allow the investor to outline the perfect balance between risk and return according to their investment objectives. In fact, asset allocation is the stage following financial planning .

Here are the steps to follow for a correct asset allocation .

1. Choosing the right investment classes. There are several different investment classes to choose from to build your portfolio. The choice must be based on the assessment of the risks and benefits of each, always reasoning according to the principle of diversification .

2. The choice of the time horizon.  The definition of the investment time horizon is a very delicate phase to which the utmost attention must be paid, above all because it refers to the evaluation of the returns to be obtained in the future. For example, if you choose long-term investments, you can achieve higher returns for a higher risk.

3. The definition of one’s risk appetite. Another aspect you need to pay attention to is defining your risk appetite. What is important at this stage is the assessment of your ability to bear any losses in the future , considering the consequences that could destabilize your personal finances. At the same time, you need to consider how psychologically you would be able to endure should any loss occur.

Asset allocation: can be strategic, tactical and dynamic

The asset allocation process can be of two different types: read the next few lines to find out how they differ when it comes to managing your investments.

Strategic asset allocation 

Strategic asset allocation is used with the aim of faithfully replicating a precise reference benchmark , assuming at the same time an efficient functioning of the market in which it is invested. By choosing this type of capital allocation, you will consequently build a portfolio oriented to the medium and long term with less frequent movements.

Tactical asset allocation


With the adoption of this allocative approach, financial choices will be made on the basis of a short-term time perspective. Specifically, the investor will move the portfolio by taking advantage of the temporary trends of the reference market with the aim of obtaining extra returns.

Dynamic asset allocation

Dynamic asset allocation consists of an allocation procedure that is extremely sensitive to market trends. For this reason, in the event of sudden and sudden market changes, the portfolio will be rapidly remodeled, avoiding being bound to a rigid intervention scheme .

Have you ever thought about diversifying your portfolio with real estate? 

Finally, thanks to crowdfunding, today real estate investment is no longer exclusively the prerogative of the professional investor.

Small savers can in fact invest in real estate crowdfunding, being able to choose between equity crowdfunding and lending crowdfunding .

Equity consists of an investment made in the form of risk capital, which allows you to become a shareholder of the company that develops the operation, binding your remuneration to the liquidation of the same.

With lending crowdfunding, on the other hand, you lend your capital, which will be returned to you together with the interest at the end of the transaction.The advantageous aspect consists in the fact that the link with the company that develops the operation does not exist , as you are a simple lender.

As it is easy to understand, lending crowdfunding turns out to be the least risky choice to rely on because it allows you to remain disconnected from the proposing company and obtain your earnings in a short time.

On the other hand, investing in real estate with lending crowdfunding can be an excellent solution to diversify your portfolio . In fact, real estate crowdfunding is a type of alternative investment that has a low correlation with traditional investments and is less exposed to market risks. This way you can minimize the risk you expose yourself to.

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