Asset Allocation means dividing each investor's assets among three broad categories of possible investments (stocks, bonds and cash) blended to offer an acceptable expected financial benefit at a tolerable expected level of risk. There are two basic tenets of asset allocation. First, that risk and return are positively correlated. Second, that a diversified portfolio's rate of return will typically be less volatile due to changes in the investment environment than an undiversified portfolio. For each client, we weigh the following factors prior to choosing the asset classes into which we will invest their money:
No two investors are alike. While everyone generally wants their money to grow as rapidly as possible, not everyone can tolerate the same levels of risk in their investment portfolio. Some investors require the income from their investments to meet their monthly obligations. Others can allow this income to be reinvested. Liquidity (the ability to access assets quickly and at full value) also varies. Some investors need tax-free income while others need to defer capital gains for as long as possible. At Silver Spring Capital, asset allocation is very specific to each one of our clients.
We believe that further segmenting assets within each main class (equities, bonds and cash) is of limited value. Therefore, we will not split hairs by allocating assets to "growth," "value," "small cap," "large cap," "mid cap," "emerging markets," etc. In short, if we get the broad allocation correct for each client, they will be well-served.