Portfolio & Asset Management
Asset management is all about limiting market volatility while maximizing returns. The first thing to understand is that asset allocation is not the same as asset selection. They are completely different steps in the overall portfolio management process. Asset allocation refers to the ratio of holdings of different asset classes, such as stocks, bonds or short-term reserves. Often referred to as equities, bonds, and cash. Taking it further, you also need to make decisions as to international content – foreign equities, global bonds, etc. There are many theories regarding the ideal asset allocation and the science of it can be quite complex. Each investor’s overall profile needs to be evaluated in order to determine the best asset allocation for them. Age, income, assets, liabilities, family, future goals, and retirement plans are just a few of the criteria that need to be evaluated when choosing an asset allocation. Most advisors offer several pre-determined asset allocation portfolios such as “conservative”, “balanced” and “aggressive growth”, which can often be tweaked to meet the needs of the individual.
Asset selection, on the other hand, is the act of choosing specific investments within the portfolio. Normally you will already have determined an approximate asset allocation you would like to reach for the portfolio, then your advisor will provide recommendations for distinct investments that meet those criteria. Within each asset class there are a multitude of smaller classes to choose from; large, mid and small cap equities; value and growth stocks; government and corporate bonds; long, medium and short-term bonds. Foreign versions of all of these. Beneath these sub-classes you can choose from hundreds, or even thousands, of investments, allowing for an incredible level of flexibility. In addition, the strategy may be different for each separate account within your overall portfolio: short-term savings, education plans, retirement savings, etc.
It is clearly crucial to choose the right financial advisor, one who will take the time to understand your needs and the needs of your family and develop a comprehensive long-term approach to maximize your net worth both now and in the future.