Asset Allocation


Proper investment allocation is both a result of individual preference and tolerance for volatility as well as relative value for the asset class and individual security. Generally, as one nears retirement the appetite for taking on risk becomes less attractive and the need for capital preservation enhanced. As well, the goal of saving and growing your investments may become secondary to the need for income from your investments to enhance your income.

Investing should be focused towards providing the client with above average results along with minimal risk. At times, an asset class such as equity might become exaggerated in price due to good economics or market exuberance or both. It would be wise to lessen this risk by reallocating from equities to protect the overall portfolio. Also, valuations in an asset class might become very compelling based on historical prices and an over allocation in this area might become warranted. For example, when Government of Canada bonds were yielding 18% in 1981 there would be no need to invest in any other asset class.

If you maintain an appropriate allocation between different asset classes and investment styles you should be able to achieve superior investment results with a low degree of risk. This should also give you more control over your investment decisions rather than being reactionary to the fears and greed inherent in investing.