General Information

Asset Allocation

Asset allocation refers to the process of dividing or allocating investments among three basic asset classes: Cash, bonds and equities (stocks). Asset allocation is the most important factor affecting portfolio returns.

Asset allocation provides a strategy for matching client objectives into an efficient portfolio of equities, bonds and cash.

The advisor’s understanding of a client's goals and objectives will result in added value by structuring a portfolio using both tactical and strategic allocation strategies.

Tactical Asset Allocation

Tactical asset allocation is the short-term approach (12 months) to setting the asset mix.
To determine the asset mix, which is composed of stocks, bonds and cash, managers rely on a strategy that regularly analyzes economic data and trends to determine which asset class to emphasize at any given time.

Strategic Asset Allocation

Strategic asset allocation is a much longer-term approach to setting the asset mix. This approach is based on long-term benchmarks and setting up the portfolio to minimize risk and decrease volatility. If tactical asset allocation looks at twelve months, strategic asset allocation looks at five to ten years. It uses more of a buy and hold approach and re-balancing when appropriate. The simplest form of strategic asset allocation is a fixed balanced fund, which has restricted limits on how much can be invested in equities and fixed income

To help the investor determine which asset allocation best suits the investor’s needs are investment questionnaires. The investment questionnaires determine individual’s objectives, time horizon, risk tolerance level and financial situation. The result of the questionnaire then identifies the particular type of investment the investor should invest in.