Asset Allocation is the Primary Determinant for Investment Performance
What assets do I own? Are any investments funded with borrowed monies? The relationship between assets and risk is similar to that between the ship and the masks which capture the wind of opportunity. Assets with greater risk can capitalize on market opportunity or capsize your financial plan in tumultuous market times. With the dimension of risk under consideration, assets should be classified according to certain asset classes which represent various securities market segments including;
- Cash;
- Intermediate Fixed Income;
- Broad Fixed Income;
- Emerging Markets Debt;
- US Large Cap Equity;
- US Mid Cap Equity;
- US Small Cap Equity;
- International Equity;
- Emerging Market Equity;
- Real Estate; and
- Commodities.
The above mentioned asset classes are further characterized in terms that can affect the ultimate outcome towards reaching the stated financial goals and objectives in your financial plan:
- risk/return characteristics ;
- fees/costs associated with transactions and advice;
- client’s ability the understand the specific asset with a class; and
- financial advisor’s ability to perform due diligence and monitor asset.
The asset classification process is important in determining what changes need to be made in the overall composition of the client portfolio. The asset allocation in a client’s portfolio across the various asset classes is the primary driving force behind an investor’s ability and likelihood to reach their True North.
