Your financial plan is a road map for achieving your personal goals throughout your lifetime. It encompasses a variety of planning areas such as income and cash flow, retirement goals, charitable giving, taxes, estate structure, and wealth transfer. For many, however, the most important aspect of financial planning is developing an asset allocation strategy that is aligned with your risk tolerance, time frame, and financial resources.
William Blair’s Dynamic Allocation Strategies team co-published a study1 in 1991 that found that 91.5% of the variability of a portfolio’s returns is attributable to asset allocation.
The simple definition of “asset allocation” is how much of your portfolio is invested in each of the various asset classes, such as cash, stocks, and bonds, as well as real estate or other alternative assets.
The appropriate asset allocation strategy for you will depend on your risk tolerance and the return you hope to achieve to meet your goals. Your risk tolerance will also be influenced by your time frame for achieving your goals, your financial situation, and your personal feelings about money and investing. By developing and implementing an asset allocation strategy that fits your particular goals and situation, you can take more control of your financial plan.