The Asset Allocation Advisor




 


How should a non-profit’s endowment be invested to manage risk? How should I invest my 401(k) savings for the highest return? Both of these questions are asking the most important question in investment management: How should investment assets be allocated or diversified to achieve maximum returns within acceptable risk limits? Whether the purpose is to support a non-profit organization’s mission or to provide for a comfortable retirement, asset allocation is the most important decision in investment management, outweighing individual security selection, manager selection, and market timing. An intelligent investor or fiduciary needs information, analysis, and education to make optimal investment allocations. The Asset Allocation Advisor is a common-sense resource for these necessities.
 
 

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Hedge Funds and Portfolio Diversification

Hedge funds are not an asset class.  With the variety of strategies employed by various funds and the wide variability in returns among funds, no generic hedge fund exists, and  no generic return and risk statistics exist on the basis of which to make an allocation to hedge funds.  But a hedge fund can have a role in an investment portfolio so long as it is analyzed and evaluated on the basis of the particulars of the fund. An investor who invests in a hedge fund just for the sake of having an exposure to hedge funds is likely to end up with a pig in a poke.  Although the Advisor does not research hedge funds, one has come to our attention that appears to be close to a perfectly efficient portfolio asset. See Hedge Funds and Portfolio Diversification.


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The Asset Allocation Advisor provides information and analysis of global capital markets including historical return and risk information, current market valuations and comparisons based on current and projected valuation factors, and projected risks and performance correlations. Portfolio performance is modeled using advanced optimization techniques that identify the most efficient portfolio allocations for various risk levels.

 

 

REGULAR CONTENT

Charts
Bank of charts of various data pertaining directly or indirectly to capital market returns and investment portfolio management.

The View from the Land of Steady Habits
Commentary on a variety of subjects affecting investment portfolio management.
 
Capital Market Outlooks
Information and analysis regarding valuations of various asset classes and the impact of current conditions on expectations for future returns.
 
Efficient Frontiers and Optimally Risky Portfolios
Reports on how asset classes can be combined to yield efficient portfolios.
 
The 10% Portfolios
Reports on how changing market conditions and expectations affect the composition of a portfolio with a target 10% return.

The Art and Science of Asset Allocation
Articles exploring the discipline of asset allocation optimization from both a practical and a technical perspective.
 
Managing Risk
Reports on issues of risk management, including how to quantify investor risk tolerances, how to measure risk exposures, and how to manage investment portfolios.
 
Special Features
Articles on topics of special interest to investors - from how to deal with the recession to how to invest in different asset classes.
 

 

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Asset Advisor Blog
 

The Volatility of Volatility, September 2
Capital markets are inherently volatile. The average daily price swing on the S&P 500 has been approximately 0.9% since 2005.  So when capital market observers tell us that the markets have been volatile or will be volatile, are they telling us anything we don't already know?

Are Stocks Overvalued? Is the Hindenburg Omen Due for Confirmation?, August 28
Whether the market is overvalued or undervalued is a perplexing question. The fact is we can't know how the market is valued today, because we don't know what the future will bring.  We can, however, make judgments about future returns.  This update of the Advisor's June stock market outlook concludes that U.S. large-cap stocks still offer the prospect of compound returns of more than ten percent per year over the next four years, although the ride might be very bumpy between now and then.

Preserving the Constitution, August 25
British constitutional theory may have something to teach Americans about what it means to preserve the Constitution and may help save us from paralyzing political arguments that interrupt the real pragmatic work of restoring economic growth and employment.

Balance This! August 24
A detailed looked at the Federal outlays budget for 2010 by department shows the challenge the U.S. faces in reducing its fiscal deficit.  Unless mandatory spending programs, such as Social Security, Medicare, and Medicaid, are reduced, balancing the budget will require tax increases no matter what economies are found in discretionary spending programs.

Hedge Funds and Portfolio Diversification, August 20
The blog entry for August 20 is a notice about a new research article on hedge funds and portfolio diversification and one particular hedge fund, Walbridge Long-Short Strategies Fund, that looks to be as close to a perfectly efficient portfolio asset as one is likely to get.  See the link to the article under the Current Research button in the left-hand column or follow the links through the blog.

How Much Inflation Is Enough? - a correction, August 17
In the blog entry of August 4, " Intimations of Deflation?", the Advisor failed to distinguish between a target range for inflation and a point target.  The distinction raises an interesting question.  Why don't central banks set a target range of -1.0% to +1.0% for inflation?  The answer has to do with avoiding deflation traps and the fact that central banks can't set short-term rates at less than zero.

 

 
Asset Allocation Advisor
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