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 Asset
Allocation
 When
times where simpler this method was called ”Don't put all your eggs
in one Basket”.
Asset allocation generally refers
to the process of spreading your money amongst the three major asset classes
of cash, fixed income, and equities.
Cash (Savings): This includes
such liquid items as CSBs, T-Bills, Money Market Accounts and Cashable
GICs.
Fixed Income: Includes long-term
GICs, Government Bonds, Mortgage Backed Securities and Bond Mutual Funds.
Equities (Growth): Includes
individual stocks, Stock Mutual Funds and various other investments that
represent investments in the stock markets.
The weighting of your portfolio in each
asset class
will be determined by your level of risk tolerance. Low risk investors will
have high weightings in the cash (savings) and fixed income classes while
those with higher risk tolerance will have greater weightings in the equity
(growth) class.
Click
to view Postcard |
You may hear or read of references to
strategic or tactical asset allocation which are different approaches to
managing you portfolio.
Tactical asset
allocation believes the ratio of different asset classes in a portfolio
can change the overall performance more than any other factor.
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Strategic asset allocation selects
a target allocation for an investor based on risk tolerance and desired
return input. For example, this may be 10% cash (savings), 60% fixed income
and 30% equities (growth). As market changes occur, the portfolio is periodically
rebalanced to maintain the desired weightings so that assets are moved
from the profitable class to those that have underperformed; effectively
selling high and buying low.
Tactical asset allocation involves
more of a market timing approach where a portfolio would be overweighted
in an asset class that is expected to provide the best returns or the
least amount of loss based upon the perception of where the market it
headed. Maximum weightings are set according to investor risk tolerances.
Cornerstone®
Planning focuses more on strategic asset allocation with periodic rebalancing
based on market results and changing investor objectives.
We have developed some sample portfolios
of strategic asset allocation based on different investor characteristics
which you can review by clicking on the Model Mix link.
Diversification |
Risks & Rewards |
* Based on information from Globe Hysales, and Paltrak
software. and A study conducted by Delbar Inc. The results represent past
performance and are not guaranteed of future results.
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