The importance of asset allocation

Asset allocation can help make a difference

The way your client splits retirement money among different types of investments — asset allocation — can have a profound effect on the performance of your client's portfolio. So selecting an asset allocation that fits their investing style and objectives is very important.

You and your clients may expect this process to be time-consuming, but it doesn't have to be. We'll help you and your client quickly understand the key points about asset allocation so you can apply this powerful tool to your advantage.

Understanding asset allocation

To put it simply, asset allocation is the process of spreading investment dollars over different types of investments or asset classes (e.g., large-cap stocks and investment-grade bonds). Each asset class is made up of securities that have similar characteristics but will tend to be different from other asset classes and perform differently from them in response to market changes. Because of that, asset allocation may help your clients:

• Manage investment risk
• Stay ahead of inflation
• Enjoy more opportunity for growth

It's impossible to completely eliminate investment risk while maintaining the kind of growth potential that can beat inflation, but a sound asset allocation strategy will help you find a balance between these benefits that your client is comfortable with.

The use of asset allocation does not guarantee returns or insulate you from potential losses.