Final answer:
Strategic asset allocation is a long-term investment strategy that balances risk and reward based on the investor's goals and risk tolerance. Purchasing stock can be done through stock exchanges, and diversifying a portfolio is crucial for reducing risk. A 30-year-old may have a different strategy than a 65-year-old due to different investment horizons and risk tolerances.
Step-by-step explanation:
Strategic asset allocation is a method used to set base policy mix and it involves the long-term investment strategy for allocating assets among various asset classes such as stocks, bonds, and cash. This allocation aims to optimize the balance between risk and reward in the portfolio based on an individual's specific goals, risk tolerance, and investment horizon.
To purchase stocks, one can go to stock exchanges through brokers, online trading platforms, or financial advisors. Diversifying your portfolio is an essential strategy because it spreads the risk across different types of investments which can protect the portfolio from volatility in any single asset or market sector.
Importance of Diversifying a Portfolio
Diversification does not guarantee economic success, but it can significantly reduce risk. A 30-year-old might have a more aggressive investment strategy focused on growth since they have a longer time horizon to recover from potential losses, while a 65-year-old might adopt a conservative approach to preserve capital as they near retirement.
Throughout your life, your investment risk level should ideally shift in accordance with your changing financial goals and comfort with risk. During the early part of your career, when long-term growth is often the objective, your risk level can be higher because you have more time to recoup potential losses.