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Schannep Investment Advisors, Inc.
Your future is why we're here.
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Asset Allocation Explained |
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Asset allocation is the
process of diversifying investments among various asset classes, such as
stocks, bonds, international securities and cash. The strategy seeks to
maximize returns for a given level of risk and specific portfolio
objectives.
· Stocks have been the best performing investment class over the long
term, but with higher volatility.
· Bonds provide investment income and diversification, while generally
reducing portfolio volatility.
· International stocks offer the potential for higher returns with a low
correlation with U.S. stocks.
· Cash provides liquidity as well as available funds to take advantage of
market opportunities.
Importantly, asset classes perform differently depending on the economic
environment, such as expansion, recession, or rising inflation.
Diversification among the various asset classes works to dampen, or mute,
volatility because not all asset classes rise or decline equally during
changing economic conditions. In fact, some asset classes may remain
stable or even increase in value when others decline. A portfolio with low
correlation among each asset class can provide more consistent returns
over time.
Efficient Frontier
Portfolio performance for a given level of risk can be optimized through
the use and application of the Efficient Frontier. The Efficient Frontier
is a theoretical representation of an ideal mix of stocks, bonds,
international securities, and cash, with different expected return
characteristics for any given level of risk. Developed by Nobel Prize
winning economist Harry Markowitz, PhD of the University of Chicago, the
goal is to maximize portfolio returns through the application of his
techniques. Included in this analysis are investment objectives, time
horizons, and attitudes toward risk. There is no consideration for income
nor capital gains taxes.
U.S. Stock and Bond
Portfolios: Risks and Returns
Source: Ibbotson Associates
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Asset Allocation Model |
Characteristics |
Aggressive Growth
The Aggressive Growth model is a diversified investment model
designed to help maximize long-term growth of capital.
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· No
consideration is given to current income.
· Investors should be willing to accept greater volatility in
exchange for higher potential longer-term returns.
· Diversification is skewed toward domestic and international
company stocks.
· Protection against inflation is a high concern |
Growth
The Growth model is a diversified investment model designed to
provide long-term growth of capital. |
· A minor
emphasis is placed on current income.
· Investors should be willing to accept moderate volatility in order
to achieve greater long-term growth potential.
· Diversification is typically skewed toward domestic and foreign
company stocks and, to a lesser degree, bonds.
· Protection against inflation is a high concern. |
Conservative Growth
The Conservative Growth model is a diversified investment model
designed to provide growth primarily and income secondarily.
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· An
emphasis is placed on near-market level total returns, with some
current income.
· Investors should be willing to accept moderate volatility.
· Diversification is balanced between bonds and domestic and
international equities.
· Protection against inflation is a high concern. |
Income and Growth
The Income and Growth model is a diversified investment model
designed to provide income primarily and growth secondarily. |
· An
emphasis is placed on income-oriented investments.
· Investors should expect less volatility than the equity market
with some capital appreciation potential.
· Diversification is typically skewed toward bonds and cash and, to
a lesser degree, domestic and international equities.
· Protection against inflation is a moderate concern. |
Capital Preservation/
Income
The Capital Preservation/Income model is a diversified investment
model designed to provide current income with significantly less
risk than the equity market. |
· An
emphasis is placed on high current income.
· Investors should expect less volatility than the equity market
with minimal capital appreciation potential.
· Diversification is skewed toward bonds and cash.
· Protection against inflation is a minor concern. |
This report is prepared for general
circulation and is for informational purposes only. It is not intended as an
offer or solicitation for the purchase or sale of any financial instrument
or service. Market prices and other data may be obtained from outside
sources and is not warranted as to completeness or accuracy. Any comments,
statements and/or recommendations made herein do not necessarily reflect
those of First Allied Securities, Inc., its subsidiaries or affiliates, and
are subject to change without notice. |
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Return to Investment Primer Index )
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