Asset Allocation and Risk Management
Asset allocation
referred to as market timing as investors try to reallocate capital
between equities, bonds and other investments.
Asset
Allocation is a mixture of your portfolio into different proportions
of stocks, bonds, real estate and other investment vehicles and
reallocation of the asset when it is out of your original allocation
percentage due to the market fluctuation or expectation of better
relative returns in other markets. This asset allocation require
macro forecasts of broad based market movement and follow by
stocks/bonds picks which require micro forecasts of individual
securities to yield better than average return.
|
Total Asset Allocation Plan (Strategy Asset
Allocation) |
|
age |
30~35 |
35~40 |
40~45 |
45~50 |
50 & above |
|
Fixed Asset |
50% |
50% |
50% |
50% |
50% |
|
Cash |
10% |
10% |
10% |
20% |
30% |
|
Investments |
40% |
40% |
40% |
30% |
20% |
|
Total |
100% |
100% |
100% |
100% |
100% |
Table 1
|
Investment Capital Allocation |
|
% of total capital |
30~35 |
35~40 |
40~45 |
45~50 |
50 and above |
|
Stock Market |
90% |
90% |
80% |
70% |
10% |
|
Bond Market |
5% |
10% |
20% |
30% |
90% |
|
Mutual Fund |
5% |
0% |
0% |
0% |
0% |
|
Total |
100% |
100% |
100% |
100% |
100% |
Table 2
|
Portfolio Allocation |
|
% from Stock Market |
30~35 |
35~40 |
40~45 |
45~50 |
50 and above |
|
Blue Chips |
80% |
80% |
80% |
35% |
10% |
|
Small Caps |
20% |
20% |
20% |
15% |
10% |
|
High dividend Stocks |
0% |
0% |
10% |
50% |
80% |
|
Total |
100% |
100% |
110% |
100% |
100% |
Table 3
Asset
allocation provide investors another way of managing risk by pouring
all they have into single particular investment vehicle, adjust
asset allocation under difference environment and time horizon
accordingly.
Asset
allocation into fixed asset (properties and real estate), cash in
hand and investment vehicles and the allocation change from
difference age range depend on your risk profile either
conservative, moderate or aggressive. Table 1 illustrate this with
the sample figure, investor need to come out with their own
allocation to fit their own personality and risk level. The figure
in table 1, 2 and 3 are just for tutorial purposes.
Table
2 is an extension of table 1 where 40% of the total asset are
allocated to investments products and 90% is allocated into stock
market during early year of investment, 5% in bond market and 5% in
mutual fund. Again the number in table 2 is just for tutorial
purpose and not meant for any recommendation nor advise on the asset
allocation. Investors should seek professional consultation for
their own asset allocation.
Table
3 extent the 90% of the allocation into stock portfolio where
certain percentage will be go into blue chips, small caps or high
dividend pay out stocks.
Asset Allocation and Risk Management