Asset Allocation 101
February 28, 2016
WE’s Julie Neitzel explores asset allocation in her monthly column for South Florida Business & Wealth. With recent market volatility, investors are encouraged to revisit their long-term investment strategy, especially key considerations necessary in the asset allocation process.
The first step in setting proper asset allocation is to identify specific goals for your investment portfolio. Because most capital market expectations are based on 20-year forward return/risk expectations, investors need to understand how to weather periods of negative returns for any given asset class. After setting long- and short-term goals, an investor has to fully understand and come to terms with risk. No one variable defines a portfolio’s risk; instead, clients need to comprehend the range of potential return scenarios, historical drawdown, and the risk of total loss, while simultaneously coming to terms with the risk level they personally can comfortably accept.
Once an appropriate risk level is set, assets can be allocated based on a client’s time horizon. Because of compounding interest, longer investment time periods typically allow a client to meet their return goals. Hiring a wealth advisor with experience in setting the proper mix of investment assets is the first step in the right direction, but it doesn’t stop there. Regularly reviewing and adjusting allocations is a critical part of the process for long-term investment success.
To read the article, click here
