Creating Your Asset Allocation Plan

When Harry and David first meet with a client, they are interested in learning about the level of investment knowledge and experience that client possesses. This is because they want to get an idea of how that client perceives investing and what their expectations are going forward. Harry and David also make certain that they understand what a client is saving for in advance of making an investment recommendation.

There are thousands of investments available for people to choose from, but the number one most important thing to ask yourself when making an investment choice is – when am I going to need to spend this money? If you know that you may need to spend a certain amount of your savings in the short term, then it is not appropriate to invest that money in something with a long investment cycle. Similarly, if you know that you may never spend a portion of your savings, but rather pass it on to the beneficiaries of your estate, then perhaps investing in something with a historically longer investment cycle and potential higher return may be appropriate.

After determining when you are most likely to spend your money, Harry and David are then interested in determining your risk tolerance. For instance, if a client never plans to spend $500,000 and they decide they’d like to pass that on to their children in say 20 years, then a logical choice based on time alone would be to invest that portion of their money in a long-term investment (like an equity) in order to seek higher potential return for the future benefit of the children who will eventually inherit the money. However, if the client is not comfortable with seeing that $500,000 potentially have a temporary dip in value by 30-40%, then investing it all in equities is not an appropriate strategy.

What Harry and David seek to do is to understand a client’s comfort level with volatility (how much their investment might increase or decrease in value) and to design a diverse portfolio of investments that will seek to provide potentially higher rate of return while ensuring that the portfolio’s volatility remains within the client’s comfort level.

Things Harry and David will consider in determining your portfolio’s asset allocation:

RISK TOLERANCE

How comfortable are you with seeing your portfolio value increase or decrease?

TIME

When do you need to spend your money?

RETURN EXPECTATION

How much return do you expect your portfolio to generate?

Things Harry and David will consider in determining your portfolio’s asset allocation:

RISK TOLERANCE

How comfortable are you with seeing your portfolio value increase or decrease?

TIME

When do you need to spend your money?

RETURN EXPECTATION

How much return do you expect your portfolio to generate?