Asset Allocation Strategies
Austin Carroll is a financial advisor at Cornerstone based in Reno, NV. Austin has passed his Series 65 Securities Registration Examination. He helps clients create customized financial plans based on their unique financial goals by addressing topics such as income, investments, and taxes.
ASSET ALLOCATION STRATEGIES
WHAT IS ASSET ALLOCATION?
When we think about our investments we often think about growth, income, or risk management. But how we grow and mitigate risk or create income is what we call asset allocation. Your portfolio’s asset allocation balances your risk-to-reward ratio. So, if you are looking for long-term growth, you will likely hold assets that are more risk-oriented, versus an investment that is all about protection of principle.
STRATEGIC ASSET ALLOCATION
There are many different asset allocation models available, but the most commonly employed version is called strategic asset allocation. This is more of a 'set it and forget it' strategy, where you establish a fixed mix of assets based on expected rates of return and accompanying risk, and then leave it alone for a very long time. This is a good strategy for long-term investing and beginner investors.
DYNAMIC ASSET ALLOCATION
If you are looking for something more active, then dynamic asset allocation might be better for you. As the name implies, it's a more proactive plan that allows short-term, tactical deviations from the original asset mix. Simply put, if you believe a specific sector is due for a drastic increase, you might temporarily raise your stake in that sector. Dynamic asset allocation requires more hands-on involvement and market knowledge, but you may have the potential to capture short-term growth.
TACTICAL ASSET ALLOCATION
Tactical asset allocation is another great strategy for those who are concerned about their asset allocation. Rather than setting and adjusting your asset mix to meet a particular end goal, this strategy encourages you to regularly adjust your positions in various assets depending on momentum and current market trends. This strategy is very hands-on and needs to be adjusted frequently to notice any potential outperformance over something as simple as a strategic asset allocation.
HYBRID ASSET ALLOCATION
Lastly, one of the newest asset allocation strategies is the hybrid approach. This combines an array of elements from the first three strategies into one portfolio. It’s like getting an all-in-one package. Part of the portfolio might be 'set and forget', another part may be running on a tactical strategy, and a third part following a dynamic strategy. Often, we see a ‘core and satellite’ approach using a hybrid asset allocation.
No strategy outshines the others, and they should be implemented based on your financial objectives. It’s important you and your advisor discuss your financial goals to ensure you have the appropriate strategy in place.
WHERE TO GO FROM HERE
Our advisors at Cornerstone understand that asset allocation is a vital piece of the retirement puzzle. To see what strategy makes the most sense for your financial and retirement situation, call our office at 775.853.9033 or click here.
Based in Reno, NV, Cornerstone is for individuals and families looking to grow wealth, protect and preserve their life savings, and plan for the distribution of their estate in a tax-efficient manner through a tailored strategy. Schedule a time to discuss your financial goals with us.