Asset optimization
What most people refer to as asset allocation we refer to as asset optimization. Any asset plan is an allocation; we strive to optimize your portfolio to efficiently meet your financial objectives.
Properly allocating a portfolio needs to take many factors into account. First, we must identify your objectives before we design an allocation. How you invest your assets depends on when you need the money, regardless of your risk tolerance. You are planning to buy a new home in six months, how you invest that chunk of money is going to be quite different compared to how you invest money needed in twenty years.
Once your financial objectives are determined, we then determine the overall asset allocation (percentage of stocks, bonds, cash, etc). From here we then decide on which funds to purchase in order to match the desired allocation. It is important to remember that one cannot perform a proper asset optimization unless all of your assets are considered. Some planners will simply invest money entrusted with them while ignoring the rest of the client's portfolio, including retirement accounts. A proper allocation has to take all accounts into consideration. Furthermore, one cannot examine one fund of a portfolio individually without taking into account how it fits into the total allocation. Certain funds will perform well in some years but not others. Each asset in our allocations play an important role in the entire portfolio and cannot be viewed in isolation.
Finally, the allocation is optimized by owning each fund in the most tax efficient manner possible. There are certain asset classes that should be owned inside of your 401k, IRA and some that should be owned in your taxable account. Oftentimes this placement is counterintuitive but the allocation is designed to ensure that you and not Uncle Sam keeps the bulk of your gains.