Cases For Asset Allocation

Abstract

Diversification is one of the most important parts of the successful portfolio investment.  Within a diversified portfolio an investor should have wide array of assets diversified across multiple classes, including but not limited to stocks, bonds, commodities, currencies, real estates, and limited partnerships.  There are also numbers of different investment strategies to consider when approaching the management of these assets.  Among these management approaches are the techniques of using separately managed accounts, individual securities or brokerage accounts and mutual funds, or a combination of any or all of these.  In addition to these management approaches, there are forces in the financial and global economic universes that need to be appropriately addressed to have effective management of these assets.   It is also important for investors to have the appropriate diversifications as well as asset allocations across multiple asset classes within any portfolios.  “Asset allocation policy explains, on average, 93.6 percent of total variation in quarterly returns; in particular plans, it explains no less than 75.5 and up to 98.6 percent of total return variation” (Jahnke, William W. 1997).   The allocation and selection of these assets needs to be weighted and selected carefully.