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Asset Management
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DISCLAIMER
The training content and delivery of this presentation is confidential, and cannot be
recorded, or copied and distributed to any third party, without the written consent
of IMARTICUS Learning Pvt . Ltd.
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ASSET MANAGEMENT
• Asset management is the professional management of various securities and assets to meet specified investment goals for the
benefit of the investors.
• The asset class definitions differ, but four common divisions are stocks, bonds, real estate, and commodities.
• The primary objective is to diversify the risks for investors by allocating the funds across different asset classes, provide a long-term
return to the investors, and professional management of funds.
• Asset management is often used to refer to the management of investment funds, while the more generic term fund management
may refer to all forms of institutional investment, as well as investment management for private investors.
• Investment management on behalf of private investors is often referred to as private banking and wealth management.

What Type of Assets?

Asset Allocation
Securities like shares, bonds, and
other securities
Assets like real estate
Asset
Long-term Returns
Management
Who are the Investors?
Individuals or entity who commit
capital with the expectation of a Diversification
return

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ASSET MANAGEMENT

3 Types of Asset Management:

Advisory Discretionary Agency

To Buy Specific Stock Client Has 100 Million & Here The
Which Clients Can Act Wants To Build/Manage Infrastructure /Logistics
Upon Or Act. Portfolio & IB Will Make Like Trading Platform Is
Investment Decisions Provided To Buy & Sell
Like % Of Investments Securities & Brokerage Is
For Various Charged
Products .Here Client
Has No Say In Investing
Decisions.

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INVESTORS AND FUND MANAGERS

An investment fund is a pooling of funds belonging to numerous investors and such collective funds are
used to purchase securities. Each investor retains ownership and control of his/her part of the shares or
units in the collective fund.

The business of investment has several facets, the employment of professional fund managers, research
(of individual assets and asset classes), dealing, settlement, marketing, internal auditing, and the
preparation of reports for clients.

An investment fund provides a broader selection of investment opportunities, diversification of risks,

greater management expertise, and lower investment fees. Types of investment funds include mutual
funds, exchange-traded funds, money market funds, hedge funds, alternate funds, etc.

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INVESTORS AND FUND MANAGERS

Investors can mention which assets they don’t want to participate in

Hedge Fund and Private Equity case as these are Accredited investors
and have say on there money what is getting invested.

Simply choose a fund based on its goals, risk, fees, and others
Investors

Oversee the fund and decide:

• Which securities it should hold
• In what quantities
• When the securities should be bought and sold
Fund Managers

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TYPES OF INVESTORS

• Individual Investors – Invest mostly in Mutual Funds, ETF etc.

• Accredited investors - Groups such as charities, organizations, corporations, etc. with total
assets in excess of $5 million
• Institutional Investors represent large pools of assets for government pension funds, corporate
pension funds, endowments, and foundations. Estimates suggest they represent almost three-
quarters of the Assets Under Management (AUM) in Europe and the US.
• High Net Worth Investors - A classification used by the financial services industry to denote an
individual or a family with high net worth. The most commonly quoted figure for membership in
the high net worth 'club' is $1 million in liquid financial assets.
• Retail Investors typically trade in much smaller amounts than institutional investors. Normally
invest in mutual funds and pensions and superannuation schemes.

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TYPES OF INVESTORS

Types of Investors

Institutional
03
Investors

High Net Worth

02
Investors

01 Retail Investors

Amount Invested

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ACCREDITED INVESTORS

Accredited investors include:

Accredited investors are the ones who can take

part in Hedge Funds. Accredited investors are Employee benefit plans like corporate pension
01 those qualified to invest in complex or
04 plans with assets in excess of $5 million
sophisticated types of securities.

An individual whose net worth, or joint net worth

Groups such as charities, organizations,
with their spouse, exceeds $1 million – excluding
02 corporations, etc. with total assets in excess of 05 their primary residence – at the time of the
$5 million
purchase

Individuals with a yearly income of $200,000 or

Banks, insurance compBanks, insurance more for the last two years or a joint income with
03 companies and investments firms 06 their spouse exceeding $300,000 for those
anies and investments firms years, as well as a reasonable expectation of the
same income level for the current year.

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ACCREDITED INVESTORS

Accredited investors include:

• Accredited investors are the ones who can take part in Hedge Funds. Accredited investors
are those qualified to invest in complex or sophisticated types of securities.
• Groups such as charities, organizations, corporations, etc. with total assets in excess of
$5 million
• Banks, insurance companies and investments firms
• Employee benefit plans like corporate pension plans with assets in excess of $5 million
• An individual whose net worth, or joint net worth with their spouse, exceeds $1 million –
excluding their primary residence – at the time of the purchase
• Individuals with a yearly income of $200,000 or more for the last two years or a joint income
with their spouse exceeding $300,000 for those years, as well as a reasonable expectation of
the same income level for the current year.

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INDIVIDUAL ACCREDITED INVESTORS AND JOINT HOLDERS

Requirements for an individual to qualify as an “accredited investor”

Individuals with a yearly
income of $200,000 or more
The individual must have a for the last two years or a
0 net worth greater than $1 0 The primary residence is not 0 joint income with their spouse
1 million, either individually or 2 counted as an asset in the 3 exceeding $300,000 for those
jointly with the individual’s net worth calculation years, as well as a
spouse. reasonable expectation of the
same income level for the
current year

Requirements for joint accounts to qualify for Accredited Investor status

All other joint account holders

If any of the joint account
At least 1 joint account holder who do not qualify for
holders opts out of Accredited
must qualify as an Accredited Accredited Investor status on
Investor status, the joint
Investor and have opted in for an individual capacity must opt
account will be re-designated
the status in for Accredited Investor status
as a retail joint account.
for the joint account
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INDIVIDUAL ACCREDITED INVESTORS AND JOINT HOLDERS

Requirements for an individual to qualify as an “accredited investor”

• The individual must have a net worth greater than $1 million, either individually or jointly with the
individual’s spouse.

• The primary residence is not counted as an asset in the net worth calculation

• Individuals with a yearly income of $200,000 or more for the last two years or a joint income with
their spouse exceeding $300,000 for those years, as well as a reasonable expectation of the same
income level for the current year

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INDIVIDUAL ACCREDITED INVESTORS AND JOINT HOLDERS

Requirements for joint accounts to qualify for Accredited Investor status

• At least 1 joint account holder must qualify as an Accredited Investor and have opted in
for the status

• All other joint account holders who do not qualify for Accredited Investor status on an individual
capacity must opt in for Accredited Investor status for the joint account

• If any of the joint account holders opts out of Accredited Investor status, the joint account will be re-
designated as a retail joint account.

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QUALIFIED PURCHASERS

Qualified purchasers include:

Any natural person (including any person

who holds a joint, community property, or
other similar shared ownership interest in an
Nearly half of the investors in hedge funds
issuer that is excepted under section 3(c)(7)
are institutional investors and the rest are
with that person’s qualified purchaser
individual investors.
spouse) who owns not less than $5,000,000
01 in investments, as defined by the
Commission
04 02

03
Any person, acting for its own account or the
accounts of other qualified purchasers, who
Any company or trust that owns not less
in the aggregate owns and invests on a
than $5,000,000 in investments
discretionary basis, not less than
$25,000,000 in investments

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Family Offices
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FAMILY OFFICE – INTRODUCTION
• Family offices are private wealth management advisory firms that serve Ultra-High-Net-Worth (UHNW) investors.
They are different from traditional wealth management shops, in that they offer a total outsourced solution to
managing the financial and investment side of an affluent individual or family.
• The ideal candidates for establishing a single-family structure are families with a private wealth of more than $150m.
• A multi-family office may be created when multiple wealthy families share some common values or goals and want to
consolidate and leverage resources. However, these families might not necessarily be related to each other.

Single-family office Multi-family office

For a private office of a family of significant Multiple wealthy families share some common
wealth, the ideal candidates for establishing a values or goals and want to consolidate and
single-family structure are families with a private leverage resources. These families might not
wealth of more than $150m. necessarily be related to each other.

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FAMILY OFFICES – INVESTMENT STRATEGY

• Family offices can often diversify their assets very broadly, much more than institutional investors can, due to the
number of assets under management.
• Family offices are also generally better able to think and invest on a more long-term basis and they primarily pursue
wealth preservation to pass on assets to the next generations.
• Family office investment strategies generally fall into three broad categories:
• Third-party managed – Using asset management funds to invest their capital.
• Public direct – Centering on liquid debt, equity securities, and derivatives that trade over a public exchange.
• Private direct – Focusing on taking a more active role in the deal process and underlying investment.
• Family offices use a mix of these strategies and also active investors in alternative investments – like art,
farmland, yachts, etc.

Pass on assets to the Diversify their assets

next generations 01 very broadly

04 02

03
Pursue wealth Invest on a more long-
preservation term basis

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FAMILY OFFICES – RANGE OF SERVICES

General service provided to the families falls into the following categories:
• Family Professional Services like family governance, succession planning, support new businesses, concierge services and security, family
counseling, management of high-value physical assets (like aircraft), education planning, etc.
• Administrative activities like accounting, bookkeeping, managing contracts, IT cost, mail sorting, etc.
• General advisory services like financial planning, tax planning, trust management, legal services, insurance planning, estate planning.
• Investment-related activities like asset allocation, investments, financial accounting and reporting, alternative investments, risk management,
custody, private banking, philanthropy, etc.

Life management and

Risk management Succession planning
budgeting

Philanthropic management Financial Planning

Business and financial advisory

Advisory

Strategy
Training and education
Estate and wealth transfer

Tax and legal advisory Administrative services or

Reporting and record keeping
back-office services

Governance

Ex: Soros Fund Management LLC – owned by George Soros

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Institutional Investors
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INSTITUTIONAL ASSET MANAGERS
Institutional asset managers consist largely of collective investment vehicles, pension funds, and
insurance companies.

These entities construct and maintain

Institutional investor will have
investment portfolios on behalf of 01 02 different trading strategies and invest
their customers, both individual
in different types of asset
investors and companies.

03

Advantage of professional research,

traders, and portfolio managers
guiding their decisions

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THE CHARACTERISTICS OF INSTITUTIONAL INVESTORS

It is always a legal entity

01
Institutional investor’s activity Access to a variety of
is professional investment instruments
02 05

Exerts a large influence on

Manages a significant 03 04 the price dynamics of
number of funds different financial
instruments

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WHO IS AN INSTITUTIONAL INVESTOR?

Pension Funds

01

Foundations Investment Companies

02 05

03 04
Savings Institutions Insurance Companies

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WHO IS AN INSTITUTIONAL INVESTOR?

An institutional investor is an organization or company that pools funds from several sources – individual
investors or other entities – and invests them in different market securities on their behalf.

Institutions that have money managed include:

Investment companies – managed

• Pensions – state, public and
dddd • dddd • dddd
Insurers via a third party where
private
fees are split

Endowments
• Non-profit organizations (Red
dddd • dddd
(Harvard/Yale/Princeton)
Cross, World Vision)
and corporates.

The largest funds tend to state investment funds or sovereign wealth funds and pensions.
These funds have a mandate to ensure their beneficiaries will be able to receive fixed payments over a
certain period.
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INSURANCE COMPANIES

These institutions employ the premium they receive from policyholders into securities. Since the aggregate
of premiums is considerable, their investments are also sizable. The returns insurance companies receive
from trading are deployed to pay for claims.

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ENDOWMENT FUNDS (FOUNDATIONS)

Endowment funds are set up by foundations where the administrative/executive entity utilizes the funds for
its cause. Typically, schools, universities, hospitals, charitable organizations, etc. establish these funds.

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PENSION FUNDS

Pension funds are investment

pools that pay for workers'
retirements.

Funds are paid for by either

employee, employers, or both.

Corporations and all levels of

government provide pensions.

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SAVINGS INSTITUTIONS

Sometimes called thrift institutions,

they are banks that serve a local
community.

They take the deposits of residents

and lend the money back in the
form of consumer loans,
mortgages, and small business
loans.

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INVESTMENT COMPANY

An investment company is a corporation or trust engaged in the business of investing the pooled capital of
investors in financial securities.

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INVESTMENT COMPANY (CONTD.)

In the U.S., most investment companies are registered with and regulated by the Securities and
Exchange Commission (SEC). Under the Investment Company Act of Investment, companies can
be privately or publicly owned, and they engage in the management, sale, and marketing of
investment products to the public.

Examples

Mutual Funds Unit Investment Trust Hedge Funds

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CHARACTERISTICS OF INSTITUTIONAL INVESTORS – SUMMARY

Investment Institutions Description

These institutions employ the premium they receive from policyholders into securities.
Insurance Companies Since the aggregate of premiums is considerable, their investments are also sizable.
The returns insurance companies receive from trading are deployed to pay for claims.

Endowment funds are set up by foundations where the administrative/executive entity

Endowment Funds
utilizes the funds for its cause. Typically, schools, universities, hospitals, charitable
(Foundations)
organizations, etc. establish these funds.

Pension funds are investment pools that pay for workers' retirements. Funds are paid for
Pension Funds by either employee, employers, or both. Corporations and all levels of government
provide pensions.

Sometimes called thrift institutions, they are banks that serve a local community. They
Savings Institutions take the deposits of residents and lend the money back in the form of consumer loans,
mortgages, and small business loans.

An investment company is a corporation or trust engaged in the business of investing the

Investment Company
pooled capital of investors in financial securities.

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FUND INVESTOR AND INVESTMENT MANDATE

• A fund or a collective scheme takes a mandate from the pool of investors. Most often the mandate or objective of the fund is
defined by the fund itself in the form of a prospectus. Based on the goals, the investors choose and invest in a fund that meets
their objectives.
• An investment mandate is a set of instructions laying out how a pool of assets should be invested. The mandate sets out
parameters and guidelines for how the money can be invested, which informs the decisions of an investment manager.
• Mandates exist to ensure investment managers abide by the desired strategy and stay within specific risk parameters.
• This is accomplished by providing instructions on items, including
• The portfolio’s priorities and goals,
• The benchmarks to be used, and
• Any specific investments or types of investments that should be either included or avoided
• The purpose of an investment mandate for pooled capital investments is to ensure all parties remain on the same page -
investors, potential investors, and the investment manager. And there is no confusion on the portfolio’s goal, the level of risk, the
types of investments included in the portfolio, etc.

Investment Mandate

01 Risk 02 Portfolio 03 Benchmark

04 Strategy 05 Acceptable Investments 05 Pooled Investments

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INVESTMENT (FUND) MANAGERS

• The term fund manager, or investment adviser in the United

States, refers to both a firm that provides investment
management services and to the individual who directs fund
management decisions
• The largest financial fund managers in the market are firms
that exhibit all the complexity their size demands.
• Apart from the people who bring in the money (marketers)
and the people who direct investment (the fund managers),
• There are compliance staff (to ensure accordance with
legislative and regulatory constraints),
• Internal auditors of various kinds (to examine internal
systems and controls),
• Financial controllers (to account for the institutions' own
money and costs), computer experts, and
• 'Back office' employees (to track and record transactions
and fund valuations for up to thousands of clients per
institution).

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INVESTMENT (FUND) MANAGERS

Asset Management Companies – AMC & Black Rock

BlackRock Inc
• By some measures the biggest investment management company across
the globe, with more than $10.0 trillion in assets under
management (AUM) as of Dec. 31, 2021.
• A Publicly traded company with a market capitalization of about
$112.3 billion,
• BlackRock provides investment and technology services to both
institutional and retail clients around the world.
• The firm offers a variety of funds and portfolios investing in vehicles such
as equities, money market instruments, and fixed income.
• BlackRock is the parent company for the iShares group of ETFs, the
largest global provider of ETFs.

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INVESTMENT (FUND) MANAGERS

Asset Management Companies – AMC & Vanguard

Vanguard
• Vanguard is one of the world's most respected investment
management companies, offering a broad selection of
investments, advice, retirement services, and insights to
individual investors, institutions, and financial professionals.
• In addition to mutual funds and ETFs, Vanguard
offers brokerage services, educational account services,
financial planning, asset management, and trust services.

Revenue US$6.936 billion (2020)

AUM US$8.1 trillion (2022)

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INVESTMENT (FUND) MANAGERS

Asset Management Companies – AMC & PIMCO

PIMCO
• PIMCO is an American investment management firm
focusing on active fixed income management worldwide.

• PIMCO manages investments in many asset classes such

as fixed income, equities, commodities, asset allocation,
ETFs, hedge funds, and private equity

• Assets under management: 2 lakh crores USD

(March 31, 2022)
• Headquarters: Newport Beach, California, United States
• Founder: Bill H. Gross
• Founded: 1971, Newport Beach, California, United States

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INVESTMENT (FUND) MANAGERS

Asset Management Companies – AMC & BLACKSTONE

• Blackstone Inc. is an American alternative

investment management company based in New York City.
Blackstone's private equity business has been one of the
largest investors in leveraged buyouts in the last three decades,
while its real estate business has actively acquired commercial
real estate. Blackstone is also active in credit, infrastructure,
hedge funds, insurance, secondaries, and growth equity. As of
June 2023, the company's total assets under
management were approximately US$1 trillion, making it the
largest alternative investment firm globally.
• Blackstone was founded in 1985 as a mergers and
acquisitions firm by Peter G. Peterson and Stephen A.
Schwarzman, who had previously worked together at Lehman
Brothers.

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INVESTMENT (FUND) MANAGERS

Asset Management Companies – AMC & BRIDGE WATER ASSOCIATES

• Bridgewater Associates, LP (informally known as

"Bridgewater")[5] is an American investment
management firm founded by Ray Dalio in 1975. The
firm serves institutional clients including pension
funds, endowments, foundations, foreign governments,
and central banks. As of 2022,
• Bridgewater has posted the second highest gains of any
hedge fund since its inception in 1975.[6] The firm began
as an institutional investment advisory service,
graduated to institutional investing, and pioneered
the risk parity investment approach in 1996.

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INVESTMENT (FUND) MANAGERS

Asset Management Companies – AMC & MILLENNIUM ASSET MANAGEMENT

• Millennium Management is an investment

management firm with a multistrategy hedge fund
offering. In 2023, it was one of the world's largest
alternative asset management firms with over $58.9
billion assets under management as of June 2023.
• The firm operates in America, Europe and Asia.[As of
2022, Millennium had posted the fourth highest net gains
of any hedge fund since its inception in 1989.

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COLLECTIVE INVESTMENT SCHEME (CIS)

Collective Investment Schemes (collective investment institutions) are more frequently known as
‘investment funds’, ‘mutual funds’ or simply ‘funds’.

• A CIS is an investment vehicle used by investment managers to pool

investors money together so they are able to access investments
which they might not be able to access in their individual capacity
CIS
• Through a CIS an investor can invest in a number of different assets
and funds such as shares and bonds One of the main draw cards of a
CIS is that investors get to share the risks associated with the stock
market, the same is true for the benefits

Collective assets owned by the fund are

Invest in assets, such as bonds,
called a portfolio and managed by a
equities, or cash.
professional fund manager

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COLLECTIVE INVESTMENT SCHEME (CIS)
• The money is pooled together with that of other investors and spread over the whole range of assets within the fund.
• The pooling of money should meet certain criteria with an investment firm, managed by a professional investment
manager, and with a specific objective.

Diversified Portfolio of GM
Securities
Mutual Fund / HF
Investors IBM
(Investment
(Shareholders) Purchases
Company) RCA
Purchase
Shares in Sears
ITT
Sony
Running Paws
GTE

01 Pooling of Money 03 With an Investment Firm

02 Managed by Professional Investor 04 With a Specific Objective

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COLLECTIVE INVESTMENT SCHEME (CIS)
• Several different types of financial institutions fall within the scope of the description collective
investment Schemes (CIS).
• Included are:

0 0 0
Investment
11 Funds Mutual Funds Unit Trusts
1 5 9

Feeder/master funds, umbrella

0 0 1
Money Market Funds Alternative Funds funds/sub-funds,
2 6 funds of funds 0

0 Property and Real 0 1

Hedge Funds Distressed Funds
3 Estate Funds 7 1

0 Professional 0 1
Private Equity Funds Variable Capital Companies
4 Investor Funds 8 2

** Hedge funds, Private Equity Funds are considered as Alternative Investments

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COLLECTIVE INVESTMENT SCHEME (CIS)
Let us see some of these institutions:
• A Mutual Fund (MF) is an investment company combining funds of investors who have purchased shares in a diversified portfolio of
securities. Mutual funds offer different kinds of schemes. Every scheme has a pre-announced investment objective. When investors
invest in a mutual fund scheme, they are effectively buying into its investment objective.
• Investors typically earn a return from a mutual fund through Dividend Distribution. Dividends are either received as cash or reinvested
as additional units. If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You
can then sell your mutual fund shares for a profit in the market.
• The mutual funds can be open ended or close ended and may be listed in the exchanges. If it is a listed mutual funds, investors can
sell and buy the units / shares through an exchange.

Mutual Funds

01 Issues shares or units, purchased by investors.

The subscriptions collected are invested in different types of asset

02 (non-financial as well as financial).
Investors may receive either regular income or, at redemption,
03 holding gains (or losses) or a combination of both.
Open-ended or closed-ended and shares/units can be quoted or
04 unquoted

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WHAT ARE ALTERNATIVE INVESTMENTS?

Alternative Investments
Sophisticated investments that carry
different risks to traditional investments,
such as shares and property

• Alternative investments are sophisticated investments that carry different risks to traditional investments,
such as shares and property.

• Alternatives refer to investments that fall outside of the traditional funds, like mutual funds.

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ALTERNATIVE INVESTMENTS

Alternative Investments

Real Estate
01 01 More complex and less number of funds
Fund

Hedge Funds 02
Assets such as private equity, private credit,
02 infrastructure, and private real estate
03 Private Equity

04 Hedge funds, the second type, operate

Fund of Funds mainly in public markets but use less
traditional tools such as short-selling and
05 Private Debt 03 leverage. Hedge Fund uses multiple assets
classes and derivative products to invest.
Type of strategy used as Leverage, Quant,
Long and Short Equity, etc.

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ALTERNATIVE INVESTMENTS

Private Equity Fund (PEF)

Partnerships of qualifying individual investors

01 or groups (up to 100 qualifying individual
investors)

Include venture capital funds, as well as

02 buying-out funds

03 Mainly institutional investors

04 To gain a long-term interest in companies

Participate in the control or management of

05 an enterprise for a specified period to
enhance its value

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PRIVATE EQUITY INVESTMENT

Investment in non-publicly Investors' money locked up

traded companies for long periods

01 02

03 04
Sell the holdings in an initial
public offering or to a Can be either venture capital
strategic buyer or in a or traditional private equity
merger

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HEDGE FUNDS

• Hedge funds are financial partnerships that use pooled funds and employ different strategies to earn active returns for
their investors.
• These funds may be managed aggressively or make use of derivatives and leverage to generate higher returns.
• Hedge fund strategies include long-short equity, market neutral, volatility arbitrage, and merger arbitrage.
• They are generally only accessible to accredited investors. An accredited investor is a person or entity that is allowed
to invest in securities that are not registered with the Securities and Exchange Commission (SEC).
• To be an accredited investor, an individual or entity must meet certain income and net worth guidelines.

Managed aggressively or make use of Financial partnerships that use pooled

01 derivatives and leverage to generate 03 funds and employ different strategies to
higher returns. earn active returns for their investors.

Strategies include long-short equity,

Generally, only accessible to
02 accredited investors
04 market neutral, volatility arbitrage, and
merger arbitrage

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COMMODITY TRADING ADVISORS

Commodity Trading Advisors (CTAs) and Commodity Hedge Funds

Commodity Natural
01 Commodity 02 03 04 Combination
Funds That Resource
Funds Funds
Hold Futures Funds

Invest in companies
that are engaged in
These funds have Holding commodity-
businesses that
direct holdings in linked derivative instru Invest in a combination
operate in commodity-
commodities, For ments, achieve this of actual commodities
related fields, such as
example, a gold fund objective by purchasing and commodity futures
energy, mining, oil
that holds gold bullion a futures contract
drilling, and agricultural
businesses

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Investor Allocation
Concepts
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ASSET ALLOCATION

• Asset allocation is the decision surrounding what percentage of your investments should be in different
Asset classes.
• Asset allocation that works best at any given point will depend largely on time horizon and ability to
tolerate risk.

Time Horizon Risk Tolerance

• Time horizon is the expected number of • Risk tolerance is the ability and willingness to
months, years of investing to achieve a lose some or all of your original investment in
particular financial goal. exchange for greater potential returns.
• Longer time horizon more comfortable taking • An aggressive investor, one with a high-risk
on a riskier, more volatile, investment tolerance, is more likely to risk losing money
because can wait out slow economic cycles in order to get better results.
and the inevitable ups and downs of our • A conservative investor, or one with a low-risk
markets tolerance, tends to favor investments that will
preserve the original investment.

Portfolio diversification, when properly executed, can improve performance by smoothing out the
bumps that occur during difficult investment environments.

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ASSET ALLOCATION

A Strategy A Process A decision

An investment strategy in
which one divides the Asset allocation is a strategic
The process of determining
investment portfolios between —and often a first or early—
which mix of assets to hold in
different diverse asset decision in portfolio
your portfolio
classes to minimize construction.
investment risks

• Ancients knew that for investing, diversification is a survival strategy. Diversification is to split a portfolio
of assets
• The Talmudic rule of thirds: “ let very man divide his money into three parts, and invest a third in land, a
third in business, and a third let him keep in reserves”

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ASSET ALLOCATION

Asset allocation is the key driver of long-term investment performance.

Other aspects of investing such as market timing and security selection have a much lower
contribution to long-term investment performance

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ASSET ALLOCATION

The Magic of
Risk vs Reward Investment Choices
Diversification

The practice of spreading

A vast array of investment
The reward for taking on money among different
products exists - including
risk is the potential for a investments to reduce risk
stocks and stock mutual
greater investment return. is known as diversification
funds, corporate and
If you have a financial goal By picking the right group
municipal bonds, bond
with a long time horizon, of investments, you may
mutual funds, lifecycle
you are likely to make be able to limit your losses
funds, exchange-traded
more money by carefully and reduce the fluctuations
funds, money market
investing in asset of investment returns
funds, and U.S. Treasury
categories with greater risk without sacrificing too
securities
much potential gain

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ASSET ALLOCATION

• A diversified portfolio should be diversified at two levels: between asset categories and within asset categories.
• In addition to allocating investments among stocks, bonds, cash equivalents, and other asset categories, also need
to spread out investments within each asset category.

Changing the asset allocation Rebalancing

• Most common reason for changing asset allocation is • Rebalancing is bringing the portfolio back to the
a change in time horizon. original asset allocation mix.
• As you get closer to the investment goal, likely need • Necessary because over time some of the
to change the asset allocation. investments may become out of alignment with
• For example, most people investing for retirement investment goals.
hold less stock and more bonds and cash • Some of your investments will grow faster than
equivalents as they get closer to retirement age. others.
• May also need to change your asset allocation if • Rebalancing will ensure that the portfolio does not
there is a change in the risk tolerance, financial overemphasize one or more asset categories, and
situation, or the financial goal itself. return the portfolio to a comfortable level of risk.

Rebalance your portfolio based either on the calendar or on new investments

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