The Importance Of Asset Mix
At Frontwater Capital, we seek to maximize the total return of a balanced portfolio, putting emphasis on the asset mix and how asset classes perform against each other. For most investors, implementing a prudent asset allocation strategy and investing over time are a more likely means of investment success.
How does asset allocation work?
How a portfolio manager or financial advisor divides funds into different asset classes is the process of asset allocation. A broad asset class such as bonds can be divided into smaller asset classes such as Treasury bonds, corporate bonds and high yield bonds. Likewise, equities can be divided into various industrial sectors including consumer products, industrials, financials, technology, etc.
What weights should be assigned to each eligible asset class?
The weightings of each asset class depend on the individual's risk profile and time horizon as well as the financial advisor's economic outlook. As asset classes begin to change in value with fluctuations in the market, the portfolio weightings of the various asset classes will also change. This requires a rebalancing back to our strategic asset mix.
