asset allocation


Also found in: Acronyms, Wikipedia.

Asset Allocation

An active management strategy for a portfolio or fund with a basic set of securities. The investor or money manager changes the securities represented in the portfolio or fund as one's investment goals change. It is important to note, however, that asset allocation implies diversification to the portfolio or fund. The investor or money manager may use fundamental, technical, and/or macroeconomic analysis in determining when and how to change the securities in the portfolio or fund.

asset allocation

The assignment of investment funds to broad categories of assets. For example, an individual allocates funds to bonds and equities. Likewise, an investment manager may allocate clients' funds to common stocks representing various industries.
Should I expect my asset allocation plan to remain largely unchanged throughout my preretirement years, or should I anticipate occasional large-scale restructuring?

You should expect only modest shifts in your asset allocation during your working years. Two components combine to create an asset allocation plan: your own financial situation and risk tolerance, coupled with historic and expected investment performance by asset class. Unless one of these components changes dramatically, there should be only modest adjustments in your allocation. The kinds of personal change that can trigger significant allocation changes are marriage, divorce, disability, birth of children, or employment or income change. Major changes in inflation, interest rates, or unforeseen social or political shocks are the type of economic events that could trigger broad allocation shifts.

Mark G. Steinberg, President, Trabar Associates, Boston, MA

Asset allocation.

Asset allocation is a strategy, advocated by modern portfolio theory, for reducing risk in your investment portfolio in order to maximize return.

Specifically, asset allocation means dividing your assets among different broad categories of investments, called asset classes. Stock, bonds, and cash are examples of asset classes, as are real estate and derivatives such as options and futures contracts.

Most financial services firms suggest particular asset allocations for specific groups of clients and fine-tune those allocations for individual investors.

The asset allocation model -- specifically the percentages of your investment principal allocated to each investment category you're using -- that's appropriate for you at any given time depends on many factors, such as the goals you're investing to achieve, how much time you have to invest, your tolerance for risk, the direction of interest rates, and the market outlook.

Ideally, you adjust or rebalance your portfolio from time to time to bring the allocation back in line with the model you've selected. Or, you might realign your model as your financial goals, your time frame, or the market situation changes.

References in periodicals archive ?
The objective of asset allocation strategy is to get you a return on your investments while still managing the risk inherent with any investment option.
The company said it is designed to meet the needs of institutional and high net worth investors, with an asset allocation system consisting of comprehensive scoring systems for alternative assets and analytical models covering key areas of performance attribution, market risk, liquidity risk, operations risk.
BHB said asset allocation explains 91 percent of the "variation of returns," not the returns themselves.
He says these are similar to hybrid funds but more actively managed in terms of asset allocation.
Knight will oversee an existing suite of asset allocation solutions, including institutional strategies and mutual funds.
Moulle-Berteaux worked for MSIM from 1995 to 2003 in several roles, including as head of the Asset Allocation team, head of Asset Allocation Research and research analyst.
A 2004 study, commissioned by The Hartford, showed that two-thirds of investors recognize the importance of asset allocation and, after reading a description of asset allocation prepared by Ibbotson Associates, nearly 8 in l0 claimed to be practicing it.
A deliberate approach to asset allocation will beat undiversified "impulse investing.
For the purpose of this article, asset allocation is defined as both a decision and a process.
Make sure to consider after-tax returns, as appropriate, when determining the asset allocation recommendations.
The pie-chart models are examples of asset allocations in portfolios with balanced, income, growth and principal-preservation objectives, and can be personalized according to your current investment strategy.
A long-term investment program based on asset allocation is one that can help you pursue your investment objectives.