How to use an asset allocation calculator

Asset allocation calculators are increasingly complementing the work of investment advisers by guiding ordinary individuals on how to balance their portfolios. This article shows how they are used.

Balanced portfolio

An asset allocation calculator helps you to create a balanced portfolio comprising of various types of investments. The main factors that these asset allocation tools consider include your age, risk tolerance, current assets, annual savings, tax rates, economic prospects, etc. Many firms now place virtual calculators on websites that advise you as soon as you have given the relevant information. Such calculators often assist individuals planning for retirement, with the aim of creating a sizeable source of income that keeps them afloat after salaried income ceases. Retirement asset allocation calculators need these details with the aim of helping individuals to balance their personal portfolios. To use asset allocation calculators, you must take a number of steps. Age factor The first detail that you need to input is your current age. This crucial detail is indispensable when the asset allocation exercise targets retirement income. Young individuals are likely to have more time to invest their savings as opposed to older people. This may enable them to invest in stocks and options that have good long-term returns. Older individuals may seek investments that have high returns over the short-term.
Current assets
Your current assets also determine the level of aggression that you can employ in investment. The larger your current portfolio, the more aggressive you can be in the investment game and vice versa.

Rate of growth

Annual savings determine the rate of growth of the portfolio based on external support (your income). The portfolio’s growth from internal organisation is a good source of profit, but additional income from you will boost its performance. Tax rate The fourth detail that you will input in the asset allocation calculator is the tax rate. Most countries charge a tax on all investment income even if they are passive financial options. Level of risk
The level of risk that you can tolerate is also important. The higher this is, the higher the expected returns and the likelihood of sudden losses. Most asset allocation calculators measure this on a scale of low to high or one to five. Economic outlook Lastly, the most unclear variable that you need to input in the calculator is the economic outlook. Most calculators measure this on a scale of very poor to very good. The best approach could be to input an average rate. Once you have typed in all the variables, you can launch the asset allocation calculator and wait for its answers. The returns are usually in percentages, showing the asset classes that you should choose.