The Basics of Asset Allocation

The Basics of Asset Allocation

March 13, 2017

Although we wish they did, Financial Advisor’s do not have a crystal ball to predict what the future holds. HOWEVER, there are many ways to protect your assets against the volatility of a market despite not having a magical crystal.  How exactly does that work? Well, let’s break it down...  a Financial Advisors constantly monitors patterns, compiles research and analyzes their client’s goals and objectives.  With this information, they can spread the client’s investments into a portfolio with a mixed group of different type funds. This practice is called “Asset Allocation”.

Warren Buffett has said it well, “Do not put all your eggs in one basket.” What if you drop that basket? Financially speaking, you are spreading the risk by investing in a group of carefully chosen assets to ensure that even if one “basket drops” there is a sustainable protection for the others. This is the most effective way to reduce one’s overall risk of their portfolio to the future “ups and downs” of the market.

At Planned Asset Management, we have over three decades of experience creating countless allocations to suit the individual needs of each and every client. With so many possibilities, we evaluate which investment asset classes are most appropriate for each individual client.

Here are a few definitions to help understanding some basics terms used when speaking about Asset Allocation:

Alternative Asset Classes

Real Estate: Land, homes, buildings, etc.

Commodities: Raw materials, gold, silver, oil, can also include rare coins, artwork

Market Capitalization

Small Cap: Company with a market value is less than 2 billion

Mid Cap: Company with a market value is about 1-5 billion

Large Cap: Company with a market value that exceeds 8 billion

Growth Versus Value

Growth: This consists of a portfolio with stocks that have capital appreciation as its primary goal. They offer higher reward but typically at higher risk. Usually growth offers little to no dividend payouts

Value: Stocks are deemed to be undervalued and are likely to pay dividends.

Blend: Mix of both growth and value

Additional Terms

Balanced – Type of income fund (both stocks & bonds), meant to generate income while saving for capital appreciation

Short term – Less than one year

Long Term – Longer than five year

International – Stocks in markets not in the United States

High Yield – AKA: Junk Bonds. High paying bonds with a lower credit rating that investment-grade bonds


All investing is subject to risk, including possible loss of principal. Diversification does not ensure a profit or protect against loss in a declining market.