Socially Responsible Investing: Understanding Asset Allocation

When you are getting involved in socially responsible investments, one topic that you will need to become familiar with is asset allocation. Here are the basics of asset allocation and why it is important.

Asset Allocation

Asset allocation concerns how your portfolio is allocated to different investments. For example, you might have some of your money invested in a socially responsible stock and another part of your portfolio devoted to socially responsible mutual funds. Then another portion of your money might be invested in socially responsible bonds.

Application

Every investor should have an ideal asset allocation that she strives for in her portfolio. For example, you might decide to put 60 percent of your capital into socially responsible stocks, 25 percent into socially responsible mutual funds and 25 percent into socially responsible bonds. As your investments change in value, you are going to need to reallocate your investments so that you can stick to the same percentages that you were using. 

It is important that you adjust your asset allocation as time goes by. For example, you might want to transition to more mutual funds and bonds as you get older because they are safer and you are getting closer to retirement.