Asset Allocation Is Key To Investment Management
Asset allocation is how an investment manager allocates investment assets among various asset classes. Generally the goal is to reduce investment portfolio risk as much as possible, while achieving a target long term investment risk/return profile.
For example, a moderate investor may allocate his or her assets over a mix of 50% stocks, 10% commodities, 35% bonds and 5% cash.
Balance And Harmony In Investment Planning
Harry Markowitz is one of the most famous father’s of “modern portfolio theory” according to most sources. Modern portfolio theory (MPT) states that there is an “efficient frontier” on which your investment portfolio can lie.
It’s not possible to be higher than the efficient frontier, however most portfolios are a combination of lower points on the efficient frontier. On the y axis of the frontier is the expected investment return, on the x axis lies the expected risk typically measured by the standard deviation of your portfolio. Creating a portfolio which garners the largest amount of investment return for a given amount of investment risk is the goal.
Here’s A Sample Efficient Frontier
