Asset Allocation

Purpose

Asset allocation determines the broad shape of a portfolio: how much sits in equities, fixed income, alternatives, real assets and cash. It is decided before individual selection, because the allocation frames the range of outcomes a portfolio can reasonably experience.

Approach

1. 01

   Begin from the investment horizon and the liabilities or spending the portfolio must support.

2. 02

   Set strategic weights with explicit ranges, and define what would justify moving within them.

3. 03

   Distinguish strategic allocation from tactical adjustment, and record the rationale for each separately.

4. 04

   Reassess allocation on a scheduled cycle rather than in response to market sentiment.

Where it fits

The primary determinant of long-run portfolio behaviour and the reference point for every subsequent decision.

• Investors establishing a portfolio for the first time or restructuring an inherited one.
• Institutions and family capital with defined spending or distribution requirements.