Asset Allocation

What is Asset Allocation?

Asset allocation is the process of dividing investments among cash, equities (ex. U.S. Large Cap, International), fixed income (ex. Taxable, Municipal) and cash equivalents to optimize the balance between risk and reward based on investment needs.

What Should my Asset Allocation be by Age?

As a general rule, your target asset allocation can be determined by subtracting your age from either 100 or 110. The resulting number is the approximate percentage of assets you should allocate to stocks. For example, at age 50, this would leave you with 50 to 60 percent in equities, depending on your risk tolerance.

What are the Types of Asset Allocation?

A suitable asset allocation strategy is important because it can prevent turmoil during the next market correction.

The main categories of asset allocation include the following:

Strategic Asset Allocation, similar to a buy and hold strategy, establishes a base policy – a combination of assets based on factors such as expected rates of return for each asset class, risk tolerance, time horizon, and investment objectives. This suggests that they’re typically a diverse mix of assets.
Constant-Weighting Allocation involves continuously rebalancing your portfolio, which should be rebalanced to its original allocation when any given asset class moves 5% from its original value and typically includes buying low and selling high.
Tactical Asset Allocation is a strategy that allows tactical deviations from an established allocation to take advantage of unusual short-term investment opportunities, adding a market-timing component to the portfolio.
Dynamic Asset Allocation involves constant adjustments to the allocation of assets as markets rise and fall. This is the opposite of the constant-weighting strategy but does also typically include buying low and selling high.
Insured Asset Allocation involves establishing a base portfolio value, and investing in risk-free assets (treasuries), in the case that the portfolio ever drops below its base value.

Integrated Asset Allocation is the use of a combination of all of the above strategies. However, one cannot use dynamic asset allocation and constant-weighting strategy at the same time, as they are contradicting methods.

The Wealthspire Team

This material should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The information provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is deemed reliable, Wealthspire cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use.

Wealthspire and its representatives do not provide legal or tax advice, and Wealthspire does not act as law, accounting, or tax firm. Services provided by Wealthspire are not intended to replace any tax, legal or accounting advice from a tax/legal/accounting professional. The services of an appropriate professional should be sought regarding your individual situation. You should not act or refrain from acting based on this content alone without first seeking advice from your tax and/or legal advisors.

Certain employees of Wealthspire may be certified public accountants or licensed to practice law. However, these employees do not provide tax, legal, or accounting services to any of clients of Wealthspire, and clients should be mindful that no attorney/client relationship is established with any of Wealthspire's employees who are also licensed attorneys.

Please Note: Limitations. The achievement of any professional designation, certification, degree, or license, recognition by publications, media, or other organizations, membership in any professional organization, or any amount of prior experience or success, should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results or satisfaction if Wealthspire is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed as a current or past endorsement of Wealthspire by any of its clients or a third party.

Registration of an investment advisor does not imply that Wealthspire or any of its principals or employees possess a particular level of skill or training in the investment advisory business or any other business.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements.

What is Asset Allocation?

What Should my Asset Allocation be by Age?

What are the Types of Asset Allocation?

Keep reading from the Resource Center

What Are Tariffs?

What Is the Debt Ceiling?

What Is a Directed Trust?

Get the latest news & perspectives from Wealthspire.