Asset allocation is the process of selecting a mix of asset classes that closely matches an investor’s financial profile in terms of their investment preferences and tolerance for risk. Yes, we know that sounds pretty technical, but it really is important.  It is based on the premise that the different asset classes have varying cycles of performance, and that by investing in multiple classes, the overall investment returns will be more stable and less susceptible to adverse movements in any one class.

All investments involve some sort of risk, whether it’s market risk, interest risk, inflation risk liquidity risk, tax risk. An individualized asset allocation strategy seeks to mitigate the risks of any one asset class though diversification and balance.

Individual Strategy

When done properly, an investor’s allocation of assets will reflect his or her desired goals, priorities, investment preferences and his tolerance for risk. Asset allocation is an individualized strategy, so there really is no perfect mix of assets.  Each individual’s strategy is built on the careful consideration of the key elements of their financial profile. Some of these are:

Investment Objectives: What it is the investor hopes to achieve using his investment dollars – improve current lifestyle; achieve capital growth; fund a specific goal, such as a college education, or a specific monthly distribution in retirement.

Risk Tolerance: This reflects the investor’s comfort level with market fluctuations that can result in losses.  Inflation risk and interest risk need to be considered as well.

Investment Preferences: An investor may prefer one asset class over another based on a certain bias or interest towards the characteristics of that class.

Time Horizon: The length of time an investor is willing to commit to achieving his or her objectives. This is critical and is unique to every client.

Taxation: Investing in a mix of asset classes will have varying tax consequences.

An Evolving Strategy

A sound asset allocation strategy includes periodic reviews. At Chartwell, we look forward to meeting with our clients to periodically review their plan and get caught up with what’s happening in their lives.

About the only certainty when it comes to the financial markets is that they will eventually change, and so will your own financial situation.  Through market changes it may become necessary to make adjustments or changes to your plan or investment allocation.  As people move through life’s stages their needs, preferences and risk tolerance may also change; requiring fine-tuning or adjustments to their financial plan. .  

That’s why being there for the long haul is so important. At Chartwell, we’ve been trusted so long because we’ve been there for our clients for nearly two decades.