Asset Allocation

Asset allocation is the process of determining how to spread portfolio investments among various asset classes (cash, fixed income securities, stocks, alternative investments), depending on the investors’ risk tolerance and investment objectives.

Asset allocation plays a key role in managing investment portfolio risk. It allows investment portfolios to be customized to suit investors’ objectives and limitations, while respecting the level of risk they are prepared to accept.

It is estimated that between 70% and 90% of portfolio performance can be attributed to sound asset allocation.

The main factors used in determining your investor profile include age; financial obligations; short-, medium-, and long-term financial goals; and tolerance for market ups and downs. Once the profile is established, your financial advisor can go about allocating your portfolio holdings among the various financial asset classes.

The Four Primary Asset Classes and Their Respective Roles

Financial assets can be divided into four primary classes:

• Cash


• Fixed income securities


• Stocks


• Alternative investments

The different asset classes have complementary roles. Their value generally varies depending on various factors (interest rates, economic growth, inflation, and so on), and as a result each may produce a profit over time.

By allocating money between fixed income securities and stocks, depending on the individual investor’s profile, we can achieve a balance between income-producing stocks and those meant to grow the amount of your principal investment.

Worry-Free Portfolio Solutions

Financial institutions have developed portfolios based on typical investor profiles, to help those seeking to diversify their assets. In addition to being highly diversified, these investment solutions offer another advantage: they will systematically rebalance asset class allocations when changes in the market cause them to deviate from their initial percentages.

Achieving portfolio balance is essential—and it’s an ongoing process that you’ll need to address in each stage of your life.