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 ?
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.
A complement to strategic asset allocation which focuses on the broadest categories--stocks versus bonds for example--is style or dynamic asset allocations.
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The probability of failure of various plans is examined for various model portfolios ranging from asset allocations that they label from conservative to aggressive.
The SRA program offers a choice of five preset portfolio asset allocations, each with a different mix of fund investments and a distinct risk profile.
Asset allocations to fixed-income securities averaged 36%, while common stocks (affiliated and unaffiliated) averaged 10% of total invested assets.
NEW YORK -- Changes in regulatory restrictions and climbing decommissioning costs are resulting in greater flexibility and diversification in investment guidelines and asset allocations for managers of nuclear decommissioning trusts (NDTs), according to a study released today by The Bank of New York.
The addition of WealthBench(TM) will enable Northern Trust investment professionals to create custom asset allocations based on Monte Carlo simulations which can then be further optimized to match clients' specific risk/return objectives.
With 401(k)s becoming the primary retirement vehicle for a growing number of Americans, I felt it was important to examine how participants used different resources for improving their asset allocations," explained Julie Agnew, Professor at the College of William & Mary and author of the study.
Advisors use AllocationMaster for developing financial profiles of their clients, generating simulations, and optimizing portfolios, with the goal of identifying asset allocations that are both backed by analysis and suited to clients' individual needs.
This is a wonderful opportunity for participants to receive the benefit of professionally determined asset allocations with virtually no ongoing effort on their part and at no charge.
Pathfinder Guides Clients Toward Best Asset Allocations to Meet