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Introduction to Investing

Comparing an appropriate investment portfolio to a healthy diet is a useful analogy. While prime rib may be your food of choice, you cannot live on beef alone. A healthy balance of proteins, carbohydrates, fats and vitamins is needed and not everyone should have the same diet. A 30 year elite athlete will require a different diet than a 70 year old who is less active.

As with a diet and the foods you choose, you have to determine the mix of investments that is right for you. Not everyone has the same investment needs nor the same tolerance to risk. Two individuals of the same age may have the same income and net worth but one may have the psychological makeup to tolerate more risk than the other. Their portfolios should probably look different.

And age is also a factor. An investor who is 70 years old has a shorter time horizon for investment performance than one who is 30 years old. The 70 year old needs the returns to be more consistent or predictable while the 30 year old can probably tolerate more ups and downs in their investment portfolio.

When you combine these factors you can get a clearer picture of what your "investment diet" should look like. Before you buy a stock, mutual fund or ETF you should have a good idea of how much room it should take up on your plate and how much room should be left for other investments.

While realms of information and ideas are available on individual investment choices, there is much less information on how those investments should be allocated within your portfolio. The Asset Allocation Tool was created to fill the that void. It is amazingly easy to use and gives you some guidelines or boundaries that can be helpful when building your investment portfolios.