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An asset allocation strategy begins by determining the financial goals of our clients and then constructing a portfolio to meet those needs. The types of assets chosen and their synergism is of paramount importance. Certain combinations will be recommended in order to reduce risk by means of diversification, while simultaneously reaching the financial goals. For instance, the equity portion of a portfolio will have both growth and value stocks in order to capture most of the rise in a market upturn without subjecting the assets to the volatility of an over-concentrated sector. The bond portion, which tends to soften a sharp fall in equity prices, may be composed of short and long maturates as well as high and low quality paper. The allocation between equities and bonds, is usually the guiding principal. This is determined by comparing the return the investor seeks with the risk he is willing to assume.
Complements to asset allocation are two programs that have been developed to control extreme fluctuations and enhance returns. They are more fully discussed under the Bond Timing Program and
Seasonality Program headings. Essentially, what one might consider after determining the appropriate mix of stocks to bonds is adding the timing mechanisms provided by these programs. Your advisor can help you in determining which programs may be helpful.
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