| Asset allocation is the process of determining the proportion of assets, such as stocks, bonds and money market instruments, to be included in an investment portfolio. Studies have shown that by far the most important component of investment portfolio performance is the ratio of debt to equity securities. The asset allocation will, in some years, account for as much as 90% of a portfolio's performance, indicating that the individual securities selected are secondary in importance. The three types of asset allocation are: strategic, dynamic and tactical. |
| The first and foremost consideration is overall composition, the proportion of stocks, bonds and treasury bills in your portfolio, called the strategic asset allocation. Objectives and constraints, risk tolerance, investor's age, income level and preferences are matched to a suitable asset mix. For most investors, the range of appropriate asset allocations is 65/35 debt/equity for a conservative investor, and 35/65 debt/equity for an aggressive investor. Note that global diversification will substantially enhance portfolio performance. The following table illustrates three different models, representing low, medium and high risk. |
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| Type of Investment Risk |
| Short-term debt instruments 55 37 15 |
| Long-term debt instruments 15 18 20 |
| Equities 30 45 65 |
| In each case, the portfolio includes: Short-term debt instruments consisting of money market mutual funds, guaranteed investment certificates (short-term), short-term bonds, savings deposits, and cash. Long-term debt instruments consisting of intermediate and long-term bonds, bond mutual funds, and long-term guaranteed investment certificates. Equities consisting of domestic, common stock issued by large, medium and small corporations, foreign stock, real estate, precious metals and commodities. |
| STRATEGIC ASSET ALLOCATION |
| ASSET ALLOCATION MODEL |
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| Low Medium High |
| UNDER CONSTRUCTION BY GREAT CANADIAN WEB SERVICES |
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| AM FINANCIAL |
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| Phone: (613) 259-5670 |
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