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Linnard Financial Management & Planning, Inc.

Fee-Only Financial Planning and Investment Advisor

Allocation Pie Chart


Importance Of Asset Allocation

Many mutual funds invest primarily in one or two asset “styles”. Fund managers measure their performance against a “benchmark” index for that style. Contrary to what some investors may believe, this does not translate into the fund manager protecting an investor’s portfolio. For investors, asset allocation and low expenses are of primary importance. In a 1991 study, Gary D. Benson et al. determined that the asset allocation determines 91% of investment results. Mutual fund managers’ ”stock-picking” contributes very little (5%) to the overall results of a diversified portfolio. This means that your investment success, and along with it, perhaps the success of your retirement or other savings goals, are primarily determined by your own intended or unintentional choices of asset diversification and asset allocation.

Controlling Risk

“Risk” can be defined as the possibility things will turn out worse than you expected. The types of investments and the degree of diversification within a portfolio heavily influence investment risk. You can reduce portfolio risk by bringing together different types of investments that are unrelated to each other. The proportion of the portfolio allocated to each type of asset determines the risk characteristics of the portfolio as a whole.

LFM&P Services

LFM&P helps you by first understanding why you are investing, what your goals are, and when you will need to draw upon your savings. Since all investments have a chance of losing money, at least temporarily, we discuss how comfortable you are with this possibility (your "risk tolerance"). We will help you to define an investment strategy that is consistent with your goals and risk tolerance. The second result will be recommendations about how to diversify among different types of assets, and what the best allocation is for your individual goals and comfort.

If you would also like help selecting investments to achieve the recommended strategy and allocation, please consider LFM&P’s investment services.