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401 (k) Asset Allocation and Diversification Solution
Diversification strategy is meant to reduce volatility in account value and lower downside risks. Aspetuck’s Risk Managed Portfolio Program allows for a choice between a Strategic Model or a Tactical Model that suits your preference, depending on your own risk and reward preference.The models use an Asset Allocation approach towards investing in markets thereby diversifying your assets worldwide in stocks, bonds, and cash-equivalents.
Diversification strategy is meant to reduce volatility in account value and lower downside risks. Aspetuck’s Risk Managed Portfolio Program allows for a choice between a Strategic Model or a Tactical Model. Within each of those models are four distinct portfolio strategies with varying risk and return characteristics that one can choose according to preference. The models use an Asset Allocation approach towards investing in markets so your assets are diversified worldwide in stocks, bonds, and cash-equivalents.
The Strategic Models use a passive investing strategy and a buy and long-term hold approach. Whereas the Tactical Models use a targeted asset allocation and active management that adjusts your portfolio’s asset allocation in response to changing market fundamentals. Your exposure to stocks, bonds, and cash-equivalents will change through a market cycle.
Diversification is the benefit you receive from asset allocation. A diversified portfolio of investments must have investments that do not react to headline news in the same way the other investments in your portfolio. Actually, its desirable to have investments that go down when others go up on a given day. If all your investments “ZIG” and “ZAG” in the same way to news than your portfolio is not diversified. Your portfolio volatility will be lower by owning investments that “ZIG” when others “ZAG”. In addition, your portfolio returns should be more consistent instead of streaky “up and down” results associated with non-diversified strategies.
Asset Allocation is a prudent way of managing retirement assets. Using a horse betting analogy may help you understand better why it’s prudent. Asset Allocation investors are placing bets on many horses (asset classes) to win the race. By doing so your expected return is higher than if you only bet on one horse to win. If one of them wins you make money but not as much as if you just bet on one horse to win. On the other hand, you are still better off because you made some money, and did not lose it when your one horse does not win. Retirement investor cannot afford not to consistently make money over long periods in your retirement account. Too much is riding on it.
It is important to start with asset allocation and understand the appropriate level of risk for your specific goals. The appropriate asset mix should reflect the length of time you plan to stay invested, your tolerance for volatility, your goal, and your financial situation. Once you determine how you want to be allocated, then you can focus on picking a model that is designed to execute your investment strategy, help you achieve your goal, and allows you to sleep at night.
The Strategic Models seek to maintain an asset allocation at its strategic weight throughout the market cycle. For example, your equity investments will be the same investment options and essentially the same weighting regardless of whether the stock market is up or down. The strategic weighting is designed to achieve a specific long-term return and risk profile. Of course, the return and risk profile characteristics cannot be guaranteed. Yet, the performance profile based on past results over long periods are a good representative of what to likely expect.
The annual rebalancing of the Strategic Models seeks to manage risk. For instance, if the Conservative Strategic Model weighting in equities grows as in a Bull market, hence the account become more aggressive, the equity weighting will be trimmed back sometime during the calendar year to bring the equity weighing down and in line with its strategic weight so to conform with its desired risk and reward profile.
The Tactical Models offer enhanced investment management solution. The Tactical Models actively managed to factor in current economic conditions, market fundamentals, as well as investment option attractiveness. The Tactical Model portfolios characteristics are adjusted to manage risks, income, and returns. For example, when economic fundamentals or market conditions suggest model should own more equities than bonds, your account will be adjusted to invests more in equities. Furthermore, if based on our analysis, technology stocks are the most attractive equity sector than your account will have greater exposure to technology stocks. And in the bond component, if Long Term U.S. Treasuries are the least attractive area of the bond market your exposure to Long Term Treasuries would be reduced. Moreover, the asset allocation/investments are rebalanced regularly to maintain an appropriate asset allocation.
If you think you have the temperament, skill, and time to manage your own investing than give it a go by constructing and managing your own 401(K) account. Your 401(k) investment options are broad enough to construct a portfolio that matches your risk and reward preference. You should be sure that you understand the concepts of asset allocation and diversification in order to construct a diversified portfolio. Also, you will also need a robust research solution providing economic reports, market analysis, and investment analysis. You might have to give up your weekends just to read all of it and stay on top of the news flow affecting your investments.
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