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Investment Allocation
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Asset allocation is the process of allocating investment funds to specific asset classes so that expected return is maximized for a given level of risk.
Asset Allocation cannot eliminate the risk of fluctuating prices and uncertain returns.
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How Should You Allocate Your Assets?
More than timing or the specific securities you invest in, the way in which your assets are allocated in stocks, bonds, and cash and how they are rebalanced over time ultimately drive your returns.
Asset Allocation is the most important determinant of variance in portfolio performance.
Source:
- Brinson, Hood & Beebower, Financial Analysts Journal, 1986
- Brinson, Singer & Beebower, Financial Analysts Journal, 1991
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Your risk tolerance determined in step one, finanancial analysis, is then matched with a corresponding asset allocation profile as shown in the example to the left.
(for illustrative purposes only)
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Please note. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. International investing involves special risks including greater economic and political instability, as well as currency fluctuation risks, which may be even greater in emerging markets.
Next Page - Step 3 Portfolio Strategist Selection
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