Step 4 -
Broaden Diversification
One of the best ways to protect your portfolio from
the vicissitudes of the market is to diversify your
investments across a number of asset classes. These
classes include domestic equity, fixed income,
foreign developed equity, emerging market equity,
real estate investment trusts, hedge funds, private
equity, commodities and cash, among others.
Institutional investors, like university endowments and pension funds, devote significant time and resources to asset allocation. Studies have demonstrated that asset allocation drives upwards of ninety percent of portfolio returns.
What benefits do asset classes offer? Each asset class has its own behavioral characteristics and moves in response to unique market drivers. Since each asset class moves largely independently of other asset classes, it provides powerful diversifying power. Download Our Guide
What asset allocation is appropriate for me? The right course of action depends on your current situation, your financial goals, your personality and tolerance for risk. Before you develop your target asset allocation, carefully consider the level of risk you are willing to accept to achieve your financial goals.
Once you have established your target portfolio allocations, it is important to keep your portfolio aligned with your policy weights. As markets move, the relative weights of asset classes will naturally slide and ultimately skew your portfolio’s risk profile. In order to keep your portfolio aligned with your risk tolerance, you must engage in a rigorous rebalancing regimen.
Assessing your risk tolerance for investing is an important component of asset allocation: Download Our Worksheet
Institutional investors, like university endowments and pension funds, devote significant time and resources to asset allocation. Studies have demonstrated that asset allocation drives upwards of ninety percent of portfolio returns.
What benefits do asset classes offer? Each asset class has its own behavioral characteristics and moves in response to unique market drivers. Since each asset class moves largely independently of other asset classes, it provides powerful diversifying power. Download Our Guide
What asset allocation is appropriate for me? The right course of action depends on your current situation, your financial goals, your personality and tolerance for risk. Before you develop your target asset allocation, carefully consider the level of risk you are willing to accept to achieve your financial goals.
Once you have established your target portfolio allocations, it is important to keep your portfolio aligned with your policy weights. As markets move, the relative weights of asset classes will naturally slide and ultimately skew your portfolio’s risk profile. In order to keep your portfolio aligned with your risk tolerance, you must engage in a rigorous rebalancing regimen.
Assessing your risk tolerance for investing is an important component of asset allocation: Download Our Worksheet