Asset allocation. Tells a personal broker

Asset allocation. Tells a personal broker

Asset allocation. Tells a personal brokerPersonal Brokers help to understand, how to form a long-term portfolio and not be distracted by news noise. We've already talked about investment risk, risk management methods, Markowitz's portfolio theory and SPT. Today - about, how asset allocation affects investment results.

On the tariff, a Wealth Management Consultant, a personal broker is the one, who provides professional investment support: prepares a financial plan for the client, helps to form a portfolio and accompanies all the ways of investing to achieve goals.

Asset classes are categories of investment instruments. Usually there are the following: stock, bonds, real estate, money and goods.

How to classify

Each asset class has its own subcategories. For example, shares are equity securities. They can be classified into sectors – the oil industry, high technology, metallurgy, finance, medicine and so on; by country - Russia, USA, Canada, United Kingdom, Australia; by region - Asia, Latin America, North America, Europe. Also in terms of capitalization - large, average, Small, micro. There are ordinary and preferred shares by type.

Bonds are debt securities. Beyond countries and regions, they can be divided by issuer: State, municipal, Corporate. By date: Short term, mid-term, Long term.

Products are divided into precious and industrial metals., agricultural products, energy products.

Real estate can also be divided into 2 major subcategories: residential and commercial.

Money is classified by the currencies of different countries: rubles, Dollars, euros, yuan and so on.

What is asset allocation

Asset allocation, which is called asset allocation abroad, allows investors to achieve financial goals at a given level of risk.

For example, a conservative investor wants to increase capital annually by 10% for five years. In this case, most of his portfolio will consist of bonds.

  10% Apple shares were once sold for a pittance

Another example: an aggressive investor is willing to take risks and wants to double his capital. In this case, his portfolio will consist mainly of stocks..

A rational investor will distribute capital between shares, bonds, currency and goods in this way, in order not to exceed the acceptable level of risk, but at the same time receive a certain profitability.

To compile a portfolio, you need to study each asset class, its profitability, risk and interdependence with other asset classes.

Asset-based investment is a choice by industries, and not between individual securities. Instead of, to think about buying Apple or Rosneft shares, investors must decide, how much capital to invest in high-tech US companies, and which one - to Russian oil companies.

Seems, that allocation by asset class is sufficient, to make a competent investment portfolio. But in addition to this, the investor needs to decide on the timing and financial goals., which he wants to achieve.

Next time we'll talk about passive investing.

If you have a portfolio of securities with a value of 3 RUB million, we recommend conducting an audit - it's free. You will receive a professional opinion from a personal broker, based on analytics from Argus Research and BCS Global Markets.

Scroll to Top