Asset allocation is a planning strategy that seeks to reduce investment risk while pursuing a desired investment outcome by diversifying your investments as widely as possible. Since 90% of a portfolio’s investment return is derived from its asset allocation, this is the critical step in constructing your optimal investment plan.
An easy way to understand asset allocation is the maxim “don’t put all your eggs in one basket”. Successful long-term investing results from strategic (long-term) and tactical (short-term) asset allocation. However, executing a good asset allocation plan is difficult because it takes investor discipline, persistence and skill.
So what is the optimal asset allocation? Each investor has their own personalized asset allocation strategy that aligns your goals, risk tolerance, liquidity needs and investment time horizon. A simple approach to viewing core asset allocation is to consider your career as a bond investment. During your working career, your earned income is your major bond allocation and your investment portfolio should be allocated more towards stocks to create a balanced portfolio. In retirement, bond investments should be emphasized and the allocation to stocks reduced.
The Wealthcare planning process weighs all of the factors appropriate to your situation to determine your personalized asset allocation strategy. The objective is for you to take just enough investment risk to achieve your prioritized goals in life with confidence.
We believe that a flexible asset allocation is the best approach to managing investment risk. It is designed to identify your appropriate core asset allocation for the long run yet make tactical adjustments to the allocation at certain times based on market and economic conditions. Flexible asset allocation can effectively manage investment risk in the short run and maximize wealth preservation over the long run.
