Jan 11 2018

Asset Allocation

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Asset allocation is the primary determinant of a portfolio’s performance, rather than market timing and individual security selection. Assets are spread amongst diverse types of securities, such as domestic stocks, foreign stocks, and bonds, because the performance of different asset classes is not always correlated. It is impossible to predict which asset category will perform best in any given year. According to studies, determining which asset categories to include and in what percentages accounts for over 90% of the investment results achieved. Broad asset class diversification is an effective strategy for reducing volatility risk. When we design your individual investment strategy, we follow several steps that define a portfolio’s risk/return characteristics:

  • Determine which asset classes will be represented in the portfolio.
  • Establish long-term target weightings for each asset category.
  • Specify the range within which the allocation of each asset class can be altered in order to enhance performance.
  • Select securities within each asset category. In order to ensure that the security is truly representative of its asset class, passive, not active management is preferred.
  • Rebalance periodically to maintain portfolio weightings and risk level.
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