Asset Allocation: Fact and Fiction

Despite their differences, all of these propositions share certain common roots, principal amongst them the need to tie a client’s risk tolerance to the portfolio recommended, and to maximise long term returns consistent with that risk tolerance. Asset allocation, or rather the integration of asset allocation to risk assessment, is the key to performing this, with the leading method of so doing in the IFA sector being the asset allocation tool. It is therefore vital for advisers to understand how these tools work. At a fundamental level, asset allocation tools use a process called mean va...