• Asset Allocation is an assessment of how your investments are spread across different investment categories - like stocks, bonds and cash. Sort of like deciding on how much of each fudge you should buy on Mackinac Island.

  • And like finding the right mix in the fudge shoppe, balancing risk across the available asset classes is hard.

  • If you are willing and able to take more risk, you should have more money allocated to risky investment buckets and if you desire and need to take less risk, you should have more money allocated to less risky buckets.

  • Poor Asset Allocation of your portfolio could lead to more risk and inferior returns. 

  • Everyone needs an asset allocation that is right for them.


Asset Allocation and periodic rebalancing is putting diversification, risk management and correlation into practice.

Many professionals use historical asset allocation information as a guide, but also combine that information with existing capital market expectations, diversification strategies, risk management strategies, risk and return analysis, correlation analysis, independent research and professional judgement to build portfolios.

Searching the internet, you will find everything from simple "rules of thumb" for asset allocation to highly complex models allocating across dozens of asset categories and sub categories. There is no one right answer to asset allocation and it can vary greatly across individuals depending on their risk profile and investment horizon.

A very basic asset allocation may look at three categories: Equities/Stocks, Fixed Income/Bonds and Cash/CDs and them establish and investment range for each category as illustrated in the hypothetical chart below. This chart is for information and education purposes only.

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Many sites and advisors use a tool or questionnaire as the first step is to determine your ability and willingness to take risk. Once you have your risk profile determined you can work on building the portfolio that most closely matches your risk tolerance, making actual security selections for each category (i.e. exactly what bonds and exactly what stocks exactly will you invest in)

Your advisor may also recommend alternative asset classes to stocks and bonds such as real estate, commodities or even timber.

Just like we don't know ahead of time what the performance or risk or any asset or portfolio will be, we don't know in advance what allocation will generate the best returns or offer the lowest risk. Since asset prices will go up and down in value, we also don't how how long it may take before the portfolio becomes unbalanced and end up more or less risky than intended. Portfolios need to be periodically rebalanced to bring them back in line with the desired targets or if the risk profile of the individual changes.

Asset allocation, investment selection and periodic rebalancing is one of the areas that J. Bradford Investment Management adds value to client portfolios. If you want to discuss an asset allocation analysis of your portfolio or any other financial topic that matter to you, please schedule a free consultation today