Asset Allocation

Asset Allocation Primer

Rebalancing Your Asset Mix

Diversification Investor Profile

Asset Allocation is the ratio of stocks, bonds and cash in a portfolio. The right asset mix relative to an investor's risk tolerance can generate higher returns, while effectively managing risk.

Asset Allocation Primer

Why is Asset Allocation Important?

Asset allocation, security selection and market timing are widely recognized as the major contributing factors to portfolio performance. Studies show that strategic asset allocation accounts for more than 90% of portfolio volatility. Unfortunately, many investors dedicate more time to the latter two, while deriving little benefit.

The Right Combination

Since different asset classes react differently to economic conditions, there will usually be some portion of your portfolio that is performing well at any one point in time. The right combination of equities, bonds, and cash can help smooth out the impact of market volatility; lowering the overall range of returns to a level the investor is comfortable with. An Altamira Investment Specialist can help determine the right asset mix for your unique investment objectives, risk tolerance and time horizon.

Rebalancing Your Asset Mix To top

Selecting an appropriate asset mix is just the beginning. Over time, those investments that grow at a faster pace will ultimately account for a greater percentage of your portfolio than originally intended. If your investment objectives and risk tolerance haven't changed, an unsuitable asset mix could limit your ability to meet long-term financial goals. Likewise, you should consider adjusting your target allocation in response to important life events, like marriage and children, or as you approach retirement.

Why Rebalance?

Rebalancing helps manage risk through effective diversification. It can also prevent investors from making hasty investment decisions, especially during turbulent market conditions. It's generally recommended that you review, and if necessary, rebalance your portfolio annually. Another option is to rebalance your portfolio when any single asset class weighting drifts significantly from its target (roughly 10% or more).

There are a number of ways to rebalance your portfolio, including the following:

Invest new contributions in lagging investments/asset class(es) to rebalance your portfolio back to its target asset mix. This is the simplest option, but requires the availability of sufficient funds to invest.
Buy low, sell high. Selling a portion of those investments that have performed well, and reinvesting the profits in underperforming investments is one of the most effective ways to rebalance your portfolio.
Change the distribution of scheduled contributions, such as your Automatic Investment Plan (AIP). Increase your monthly contribution to the underperforming investment until your portfolio is once again in keeping with the target asset mix.