asset allocation

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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 ?
* HNWI and UHNWI asset allocations across 13 asset classes
[USPRwire, Mon Dec 09 2013] This report provides the latest asset allocations of Peru HNWIs across 13 asset classes.
A new survey found that target-date funds (TDFs) with significantly different asset allocations deliver similar retirement savings outcomes, up to age 85.
In fact, annually updating asset allocations actually can turn out to be riskier than only doing so every few years.
CPA advisers can use the information to assess risk and return, analyze appropriate asset allocations and track a client's financial goals.
A complement to strategic asset allocation which focuses on the broadest categories--stocks versus bonds for example--is style or dynamic asset allocations.
A company does not need a sophisticated asset/liability management analysis of asset allocations to make that decision.
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.
[USPRwire, Tue Nov 26 2013] This report provides the latest asset allocations of the US HNWIs across 13 asset classes.
"But Europe's institutional investors should not be lulled into a false sense of security--they have very conservative asset allocations and aging workforces that will continue to increase liabilities."
[ClickPress, Sat Jan 10 2015] This report provides the latest asset allocations of the US HNWIs across 13 asset classes.