Asset allocation is the process of implementing an investment strategy that adheres to the investor’s risk tolerance, timeline, and financial goals. The key to asset allocation is balancing risk versus reward to pursue the best possible return on the client’s investment. Diversifying the types of investments in the portfolio may reduce the overall risk of losing money since each type of account may perform differently.

 

 

Classes of Asset

The Four Basic Classes of Assets used in Investment Portfolios are stocks, bonds, cash, and alternatives assets:

• Stocks: Stocks can be the most volatile option, but they can also provide a higher return than other investment vehicles. Stocks are commonly used for long-term investing as they tend to appreciate over full market cycles.
• Bonds: Bond values rise and fall in correlation with interest rates. They can be less volatile than stocks, but they sometimes offer a lower rate of return. Bonds offer fixed interest payments at regular intervals as well as the return of par value at maturity.
• Cash alternatives: These are the least volatile investment option, but they offer the lowest growth rate. They’re often used for short-term investments, but because they are subject to inflation, there’s a chance the returns won’t outpace rising prices.
• Alternative Assets/Strategies: This category may include assets such as Real Estate Investment Trusts (REIT), Master Limited Partnerships (MLP), Managed Futures, Commodities, Currencies, and/or Annuities.

 

Your asset allocation strategy will depend on your risk tolerance, investment time frame, and financial goals.

Types of Strategies to Consider:

• Strategic Asset Allocation: Used for long-term investing, the goal is to create a diverse mix of assets that will optimally balance risk and return over full market cycles.
• Tactical Asset Allocation:  Using active management, the goal is to find a balance of investment vehicles that demonstrate the greatest promise for gains in any given market environment. 

 

Our team of Financial Advisors will help you determine which investment strategy is right for your situation. Whether your goal is to save for retirement or to start a college fund for your children, we’ll analyze your financial situation to create your personalized investment recommendation, which will include specific investments for your portfolio. Once you’ve settled on the initial allocation strategy, we’ll work with you to rebalance your portfolio to seek returns.

 

 

To learn more about the different Asset Classes or other financial services, contact Genesis Wealth Advisors to schedule an appointment today.

 

Diversification or asset allocation does not guarantee a profit or protect against a loss. There are some risks associated with investing in the stock markets: 1) Systematic risk - also known as market risk, this is the potential for the entire market to decline; 2) Unsystematic risk - the risk that any one stock may go down in value, independent of the stock market as a whole. This also incorporates business risk and event risk; and 3) Opportunity risk and liquidity risk. The bond market is volatile and carries interest rate, inflation, liquidity and call risks. As interest rates rise, bond prices usually fall, and vice versa. Change in credit quality of the issuer may lead to default or lower security prices. Any bond sold or redeemed prior to maturity may be subject to loss. An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency.  Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. You should be aware of and carefully consider the following points before determining whether alternative investments are appropriate for you.  Alternative investments include, but are not limited to, investments in hedge funds, fund of hedge funds, CTAs, private equity funds, real estate funds and managed account platforms. Alternative investments are very speculative and are highly risky.  Alternative investments are not regulated. They may employ speculative and risky investment strategies. They may have limited liquidity and carry high management fees.  They may have little or no operating or performance history. Past performance is no guarantee of future results. There are no guarantees of profit. Strategic asset allocation is a portfolio management method involving the setting of target allocations and the periodically rebalancing of the portfolio back to those targets as the original asset allocation percentages are skewed by returns.