portfolio management concept

2.  Asset allocation is one of the most important
steps in portfolio management process. The
initial step for the financial planner is to
determine the required rate of return based
on financial goals, risk tolerance and time
horizon.
 The second step is to ascertain capital
market expectations, as well as the expected
return and expected volatility of each asset
classes.

3.  Asset allocation is an investment strategy by
which an investor or a portfolio manager
attempts to balance risk versus reward by
adjusting the percentage of amount invested
in an asset of a portfolio according to the
risk tolerance of the investor, his/her goals
and the investment time frame.
 Categories: Cash, Bonds, Stocks, Real Estate,
Precious Metals and Others.

4.  In its simplest terms, asset allocation is the
practice of dividing resources among
different categories such as stocks , bonds,
mutual funds, investment partnerships, real
estate, cash equivalents and private equity.
 The goal of asset allocation is to reduce risk
through diversification by having exposure to
a variety of investments that perform
differently during various market conditions.

5.  Reduced risk: A properly allocated portfolio
strives to lower volatility, or fluctuation in
return, by simultaneously spreading market
risk across several asset class categories.
 More consistent returns: By investing in a
variety of asset classes, you can improve
your chances of participating in market gains
and lessen the impact of poorly performing
asset class categories on overall results.

6.  A greater focus on long-term goals: A
properly allocated portfolio is designed to
alleviate the need to constantly adjust
investment positions to chase market trends.
It can also help reduce the urge to buy or sell
in response to short-term market swings.

8.  Strategic Asset Allocation
 Tactical Asset Allocation
 Constant-Weighting Asset Allocation
 Balanced Asset Allocation
 Dynamic Asset Allocation

9.  Strategic Asset Allocation:
 assigning weights to different asset classes on the
basis of an investor’s risk and return objectives
and the capital market expectations.
 Tactical Asset Allocation:
 tactical asset allocation allows investors to make
short-term deviations from asset weights
assigned in strategic asset allocation strategy.

10.  Constant-Weighed Asset Allocation:
 With this approach, you continually rebalance your
portfolio. For example, if one asset is declining in
value, you would purchase more of that asset; and if
that asset value is increasing, you would sell it.
 Balanced Asset Allocation:
 provides a framework to rebalance the portfolio to
the ratio of the original asset mix. It involves selling
the securities in the asset class which has appreciated
in value and investing in other asset classes to restore
the original asset mix.
 Dynamic Asset Allocation:
 constantly adjust the mix of assets as markets rise
and fall, and as the economy strengthens and
weakens.

11.  There are two propositions:
 1. Risk Tolerance
 An investor with greater tolerance of risk should
tilt the portfolio in favour of stocks, whereas an
investor with lesser tolerance for risk should tilt
the portfolio in favour of bonds.
 2. Time Horizon
 An investor with a longer investment horizon
should tilt the portfolio in favour of stocks
whereas an investor with a shorter investment
horizon should tilt the portfolio in favour of
bonds. This is because the risk from stocks
diminishes as the investment period lengthens.

14. Risk Tolerance
Time Horizon Low Moderate High
Short 0 25 50
Medium 25 50 75
Long 50 75 100

15.  “Don't put all your eggs in one basket.”