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Asset Allocation

Asset allocation is the process of selecting a mix of investments that closely matches an investor’s financial profile in terms of their investment preferences, tolerance for risk and financial situation.  

All investments involve some sort of risk, whether it’s market risk, interest risk, inflation risk liquidity risk, tax risk. An individualized asset allocation strategy seeks to mitigate the risks of any one asset class through diversification and balance. 

Individual Strategy

When done properly, an investor’s allocation of assets will reflect his desired goals, priorities, investment preferences and his tolerance for risk. Asset allocation is an individualized strategy, so there really is no perfect investment portfolio.  Each individual’s strategy is built on the careful consideration of the key elements of their financial profile:

Investment Objectives: What it is the investor hopes to pursue using his investment dollars – improve current lifestyle; work towards capital growth; fund a specific goal, such as a college education

Risk Tolerance: This reflects the investor’s comfort level with market fluctuations that can result in losses.  Inflation risk and interest risk need to be considered as well.

Time Horizon: The length of time an investor is willing to commit to pursuing his objectives.

Taxation: Investing in a mix of asset classes will have varying tax consequences.

An Evolving Strategy

A sound asset allocation strategy includes periodic reviews.

About the only certainty when it comes to the financial markets is that they will change, and so will your financial situation.  Through market gains and losses, a portfolio can become unbalanced and it may be important to make adjustments to your allocation.  As people move through life’s stages their needs, preferences, priorities and risk tolerance change and so too must their asset allocation strategy.   

*Asset allocation does not ensure a profit or protect against a loss. No strategy assures success or protects against loss.