Asset Allocation

Asset Allocation

An asset allocation study is an important strategic planning tool used to assist clients in optimizing the balance between portfolio risk and return -- that is, we provide our clients with portfolio configurations that help them balance their primary objectives of maximized return and low volatility. These studies require technical expertise and market knowledge, as well as the judgment that accumulates with years of superior client service.

The asset allocation process involves four primary steps: the identification of alternative portfolios, the projection of future cash flow conditions, an analysis of the interaction of the portfolios with the future cash flows, and the implementation of diversified asset class exposures.

Assumptions regarding the future levels of risk, return, and correlation among asset classes are derived through a comprehensive review of historical data, combined with a quantitative and qualitative examination of current market conditions. This review process leads us to what we believe to be reasonable long-term, forward-looking assumptions.

Historical relationships, such as the premium paid over time to large-cap equity investors over inflation, combined with a thorough examination of current factors such as valuations, interest rates, default rates, credit spreads, and various other factors are analyzed in the assumptions-setting process. In general, we prefer to use conservative assumptions that portfolios are more likely to meet or exceed rather than unrealistic or overly optimistic expectations.