Portfolio Allocation

A well-diversified portfolio is a mixture of many different equity, bond and alternative asset classes which should provide optimal growth, income and stability for a client’s specific risk tolerance when combined in the right proportions.  Growth is typically achieved through exposure to equities, which are categorized by size (from small to large) and by style (from value to growth).  Bonds historically provide income and stability to a portfolio.  They are categorized in terms of their credit quality, taxation and length of time to maturity.  Alternative investments can vary from growth to income oriented.  They are often low or negatively correlated to more traditional investments classes and are often used to help decrease portfolio volatility.  For the purpose of illustrating diversification, one example of a 40 (equities) / 40 (bonds) / 20 (alternatives) portfolio is shown below.

As part of our big picture approach, we address asset allocation at multiple levels, not just on a per account basis.  When examining a client’s total investment portfolio, we take all assets into account – cash, investment real estate, business interests, etc.  This may also include the present value of future income streams from social security and pension plans, which can add significant value to the fixed income portion of the portfolio and affect the allocation considerably.  Understanding the total investment portfolio helps us best position the assets that we manage to achieve the proper risk/reward balance for our clients.  Below is a hypothetical example of our comprehensive asset allocation approach.