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Allocation Amount – What Does Allocation Amount Mean?

What Does Allocation Amount Mean?

Allocation AmountAllocation amount is the percentage of money given to a particular person or used for a particular purpose.  For example, direct deposit payroll distribution, automated investing, or insurance beneficiary disbursement.

Allocation Amount in Finance

An asset allocation amount in finance is the percentage of an investor’s cash or capital outlay that goes toward a final investment. The allocation amount often refers to the amount invested in a product minus the fees incurred during the transaction. An allocation amount can also identify the percentage of income that an investor applies to specific investment categories.  For example, stocks, bonds, commodities, or ETFs, These predetermined allocations can be established on an ongoing basis through an automatic investment plan.

Asset Allocation Amount

Stocks and bonds both have advantages and downsides. Stocks have historically outperformed bonds in terms of long-term returns. Since 1926, the average yearly return on equities has been about double that of bonds. At the same time, equities are more volatile. Bonds in a portfolio minimize volatility but have lower projected returns.

Asset allocation is the process of allocating your investments among various assets such as stocks, bonds, and cash. The decision to allocate assets is based on individual choices and preferences. However, the allocation that works best now will likely change over time. As you mature, your time investment horizon tends to change as does your risk tolerance. Maintaining the proper asset allocation is arguably the most essential maintenance decision long-term investors can make.

By including asset categories with investment returns that move up and down under different market conditions within a portfolio, an investor can protect against significant losses. Historically, the returns of the three major asset categories have not moved up and down at the same time. Market conditions that cause one asset category to do well often cause another asset category to have average or poor returns. By investing in more than one asset category, you’ll reduce the risk that you’ll lose money and your portfolio’s overall investment returns will have a smoother ride. If one asset category’s investment return falls, you’ll be in a position to counteract your losses in that asset category with better investment returns in another asset category. (Source:

What is diversification?

Diversification is the technique of dispersing money among many investments to lessen risk. Diversification reduces overall risk by spreading your holdings over a wider range of investments. One strategy to diversify is to spread your investments across multiple asset classes. Stocks, bonds, and cash do not tend to move up and down at the same time. Factors that cause one asset class to underperform may increase returns in another. People invest in different asset classes with the assumption that if one loses money, the others will compensate.

Moreover, you can further diversify by spreading your investments within each asset class. This entails holding a variety of stocks or bonds.  Also, by investing in several sectors such as consumer goods, health care, and technology. As a result, if one sector performs poorly, you can counter it with assets in sectors that perform well.

What is rebalancing?

Rebalancing is the periodic process where investors return their portfolio to its original asset allocation mix. Rebalancing is required since certain investments will grow faster than others over time. As a result, it may cause your holdings to diverge from your investment objectives. By rebalancing, you safeguard that your portfolio is not overweight in any asset group.  Also, it remains at a comfortable level of risk. For example, you may begin with 50% of your portfolio invested in technology stocks.  Over time that might climb to 75% of your holdings due to appreciation and market gains.  To rebalance, you’ll need to sell some of your equities or invest more in other asset categories.  This is done periodically to reestablish your original asset allocation target.

Allocation Amount for Direct Deposit

Direct deposit allocations are the automatic distribution of regular, recurring electronic deposits to one or more qualified accounts. The amount transferred to the account will be equal to the employee’s net pay multiplied by the allocation percentage specified by the employee. For example, consider an employee who receives $2,000 each pay period.  He instructs that half his pay goes to savings and half to checking.  Therefore, 50% of $2,000 equals $1,000. So $1,000 goes to his savings account and $1,000 goes to his checking account each pay period,  Of course, the amount may change depending on the net pay for each payroll cycle.

Allocation Amount for Mutual Funds

Mutual funds provide several sorts of shares to investors, known as “classes.” Each class invests in the same security portfolio and follows the same investment objectives and policies. However, each class has its own set of shareholder services and distribution arrangements.  Also, each class carries its own set of fees and expenses. But, because of the various fees and expenses, each class is likely to perform differently. A multi-class structure allows investors to choose the fee and expense structure that best suits their investment objectives.  This includes the time that they expect to remain invested in the fund.

When buying and selling mutual funds, investors using full-service brokerage services can expect to pay a sales load. Mutual fund companies set sales load schedules, which are then stated in a fund’s prospectus. Sales loads can be front-end, back-end, or trailing.  Regardless, they almost always reduce the overall amount invested in a product. Knowing the sales load allocation amount allows an investor to better understand how their money is being spent. It also indicates how much they are investing in an actual product which serves as the foundation for total assets invested and future capital profits.

For example, consider an investor who writes a $10,000 check to a fund to purchase fund shares.  The fund charges a 4% front-end sales load, so the total sales load will be $400. This $400 sales load is taken from the $10,000 upfront payment and is usually paid to a selling broker.  Only the remaining $9,600 is utilized to purchase fund shares for the investor.  Always keep in mind that the higher the costs, the lower the overall allocation amount for the client.

Allocation Amount for Automated Investment

An allocation amount is a predetermined proportion of income that an investor chooses to allocate to specific investments. They can establish this regular distribution through an automatic investment plan. The allocation amount paid to a 401(k) from an employee’s paycheck is a common example. Moreover, the employer will often match the employee’s allocation amount up to a set percentage in many employee benefit plans.

Allocation amounts are also important when making various types of investments using various automatic investment programs. A systematic, or regular investment strategy can help you capitalize on shifting market conditions.  At the same time, you can avoid the futility of trying to time the market.

Dollar Cost Averaging Fundamentals

Regular investing will assist you to overcome the human instinct to avoid buying in a dropping market.  In reality, these declining markets result in an environment where stock prices may actually be a fairer value. An investor can use an automatic investing plan, also known as dollar cost averaging.  This lets him invest the same amount at regular intervals regardless of whether stock prices climb or decline. Investors can use this method to automatically buy more shares at cheaper prices and fewer shares at rising prices.

In general, most investors’ long-term plan remains constant.  Therefore, a regular investment regimen can help take the emotion out of investing when markets get exceptionally volatile. There is no need to make significant changes. In reality, withdrawing funds from the market or ceasing to invest during dips may not be the best strategy.  That approach can result in selling cheaply.  Or, missing out entirely on the opportunity to add to a portfolio while prices are low.

Allocation Amount for Insurance Beneficiaries

If you have more than one life insurance beneficiary, you can allocate how much each person or entity will receive. These are known as beneficiary allocation rules. If you have three children, you could specify that each will receive one-third of the total. However, it is important to avoid mistakenly disinheriting someone when allocating life insurance proceeds. For example, you can name each of your children individually, such as 50% to William and 50% to Jane.  But, you risk leaving someone out.  This can happen if you have another child in the future and don’t update the beneficiaries on your policy.

Up Next: What is Giggle Finance?

Giggle FinanceGiggle Finance is an online lending platform targeting small business owners and gig economy workers with quick access to up to $5,000 loans. The startup is a financial technology company with an online loan platform.  Their focus is to assist small business owners and gig economy employees who are making 1099 revenue.

The platform provides access to funds of up to $5,000 for qualified borrowers. Giggle Finance identifies these loans as technically, a cash advance “revenue-based financing scheme”. Giggle Finance Requirements: To participate, you must be self-employed with at least 3 months of work history.  Additionally, you must show more than $3,000 per month in earnings.

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