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Strategic Asset Allocation

Balancing Risk and Return

Many theories regarding how to structure investment portfolios have been developed. Most of them do not stand up in the light of experience. Modern Portfolio Theory, the basis for Asset Allocation, is an exception. First developed by two professors in the late 1950’s, and later refined by a third, Asset Allocation has become a preferred portfolio management technique by many major financial institutions. An indication of the legitimacy of the process is that the three professors shared the Nobel Prize for Economics in 1990.

Many portfolios are put together using a ‘seat of the pants’ approach. Over time, the results reflect this. Usually, the investor finds out that he or she has assumed too much risk for the amount of return being realized from the portfolio. Sometimes the investor has been so conservative that he or she could have enjoyed much higher returns by assuming only slightly greater risk. Other common problems are that the portfolio is either concentrated too heavily in too few assets or is over diversified. While Asset Allocation is not perfect, and does not assure against market loss, it is designed to help address most of these problems. We call our fee based program managing no-load mutual funds and other low cost investment alternatives the "BEAM Financial Manager".

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