Asset allocation is the process of combining or choosing among different asset classes for the purpose of maximizing return for a particular level of investor portfolio risk. A fundamental justification for asset allocation is the notion that different asset classes offer returns that are not perfectly correlated, hence diversification* reduces the overall risk in terms of the variability of returns for a given level of expected return.
Assets are financial instruments that can be purchased or sold such as: stocks, bonds, real estate, precious metals, art and certificates of deposit (CDs). Asset classes are groupings of assets with similar characteristics and properties. Examples of asset classes are large-company stocks, government bonds, corporate bonds and international stocks.
Every asset class has distinct characteristics and may perform differently in response to market changes. Therefore, careful consideration must be given to determining which assets you should hold and the percentage to allocate to each asset class. Factors that greatly influence the asset-allocation decision are your financial needs and goals, your investment horizon, and your attitude towards risk.
Asset allocation is the most important determination of your portfolio’s long-term performance. StateTrust analyzes your holdings in detail, investment time horizon, expected return and risk profile in order to recommend an asset allocation stratety.
* Diversification does not guarantee a profit or ensure against loss.
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