What is Asset Allocation? A Simple Explanation for Kids, Teens and Beginners

What is Asset Allocation? Investing 101: Easy Peasy Finance for Kids and Beginners

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Introduction to Asset Allocation for Kids and Teens

This video explains the concept of asset allocation in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about asset allocation, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.

Suitable for students from grade levels:

• Kindergarten
• Elementary School
• Middle School
• High School

The topics covered are:

• What is asset allocation
• Why do you need asset allocation
• How to perform asset allocation
• What asset allocation is right for you
• Do you have to keep changing your asset allocation
• What happens to your asset allocation if one of the assets gains or loses too much

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Howdy Wall St. Willy!

Sometime ago, when you talked to me about asset classes, you mentioned asset allocation. But…

What is asset allocation?

Asset allocation is deciding how much of your money to invest in different asset classes.

But why do I even need asset allocation?

You need asset allocation to achieve diversification so that you reduce your risk of losing money and decrease the fluctuations in the return that you get.

So, is asset allocation like putting $1000 in stocks, $500 in fixed income and so on?

Asset allocation is usually expressed as a percentage of your total investments.

Asset Allocation: Percentage invested in each Asset Class, adding up to 100%

So, for example, your asset allocation could be 75% in stocks and 25% in fixed income.

But, how is asset allocation decided?

It varies from person to person and depends on factors like your age, how much you save, your risk tolerance etc.

But is the asset allocation the same for everyone?

What asset allocation is right for me?

It depends on your specific situation. But generally speaking, the younger you are, the higher your allocation to stocks should be. And as you grow older your allocation to fixed income should increase.

A general rule of thumb is your investment in equities should be 100% minus your age.

Rule of Thumb: Allocation to Equities or Stocks = 100 – Your Age

So, if you are 30 years old, your allocation should be 100% – 30, which is 70%.

So, does that mean I have to keep changing my asset allocation?

Yes, you do need to change your asset allocation if your personal and financial circumstances change. Say, you get a promotion or you have a kid.

You also have to change your asset allocation with age.

But, what happens to my asset allocation if one of my assets gains or loses too much?

In that case, you would need to rebalance your portfolio, but that’s a topic for another time.

Thank you very much for telling me about asset allocation, Wall St. Willy.

You are welcome, Sooper Cooper. Remember, Finance is Your Friend!

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Video Featured in the Below Financial Literacy Course for Kids & Teens

• Course: Investment Strategies

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Download Transcript: Ideal for Use by Teachers in their Lesson Plan to Teach Kids & Teens

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Podcast: What is Asset Allocation?