Asset Allocation Definition | Annuity Digest (page 8)

Asset Allocation

Simply put, asset allocation involves spreading your money across different types of investments or “asset classes “. It’s how you divvy up your portfolio--whether you choose, cash, bonds or stocks or some other combination of asset categories. The idea is to figure out what is the right or “optimal” mix of asset classes to meet your investing objectives and risk tolerance. A key objective is to find investments that are not correlated. In other words, risk is theoretically reduced by having investments that don’t all move down at the same time to reduce risk. To keep your portfolio in ship-shape, you need to periodically revisit your asset allocation and rebalance your portfolio. In other words, buy and sell for the portfolio from time-to-time because various assets grow at different rates.

Not All Target Date Funds are Created Equal

Conservative is in the eye of the beholder when it comes to target date funds. Very generally, target date funds are mutual fund offerings that automatically shift asset allocations to a more conservative profile as the fund owner approaches retirement age. In other words, a "2015" fund may be purchased by someone intending to retire on or around 2015. This 2015 fund will likely move towards a higher bond and lower equity allocation as 2015 approaches. It turns out that target date funds can be...

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New "Hybrid" Products Combine Traditional Investments with Insurance that Guarantees Income

Traditional asset allocation and many target date mutual funds have not served retirees and near-retirees well during the financial crisis. Many in the asset management community are realizing that diversification and asset allocation are not sufficient. Largely in response to the crisis, several companies are rolling-out new products that combine traditional asset management and insurance . These "hybrid" products use insurance to create a base income that is guaranteed for life and is not...

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