The Importance of Asset Allocation | Mission Wealth

Hi. My name is Kieran Oswald, Chief investment officer at Mission wealth and today we will be discussing the importance of asset allocation the intent of asset allocation within portfolio design is to identify the right mix of Investments That align with your financial goals it is the portfolio allocation across stocks bonds cash and other assets such as real estate well-designed portfolios help produce more consistency in returns at Mission wealth we design portfolios with Target asset allocations that provide an appropriate level of risk and return based upon your personal financial plan and your risk tolerance so why is asset allocation important portfolio design the allocation across asset classes is the single largest determining factor in portfolio returns with studies showing a contributes over 91 of the total return on a portfolio at the broadest level asset allocation can be thought of as the split between stocks and bonds stocks tend to be more growth oriented and volatile meaning they experience larger swings in value both up and down whereas bonds tend to act as an anchor of the portfolio providing more

Stability and also providing a relatively consistent income yield correctly stocks and bonds have often moved in opposite directions to each other particularly during stock market sell-offs so having a dedicated allocation to core bonds may help protect against large market downswings and ultimately produce more consistency in returns from one period to another this chart illustrates how a well-diversified asset allocation can produce more consistent returns over time let’s take a look at a full 10-year Market cycle this one is from 2008 through 2017. why this 10-year period well it represents a time period that includes both good and bad years which is fairly typical of how things tend to play out for Investments sometimes we do experience longer stretches of up or down markets but this is a good example that has a mixture of returns the starter specifically uses index returns as a measure of how various asset classes performed each colored Square represents the annual performance of an asset class over a 10-year period and includes the great financial crisis of 2008.

Asset classes are ranked each year from best performing to worst performing the purple highlighted boxes represent a portfolio comprised of 60 stocks and 40 bonds the first observation is that this portfolio is never the best performer but also never the worst it consistently ranks in the mid to top end of the pack year in year out in 2008 Bonds were the best performing asset class returning five percent while stocks were down significantly across the board as you can see a diversified portfolio helped mitigate the negative stock market returns in 2008. in 2009 stocks reversed costs and rallied significantly while bonds trailed and were the worst performing asset class in this instance the portfolio comprised 60 stocks and 40 bonds participated in the upside of stocks and outperformed bonds the reality is the performance of each individual asset class can differ significantly from one period to the next but a well-designed portfolio allocated across asset classes can produce much more consistent results indeed over the 10-year period Illustrated this the same portfolio comprised 60 stocks and 40 bonds produced about three quarters of the return of the s p 500. all while only taking about 60 of the risk we also highlight the 10-year performance of other portfolios ranging from 20 stock exposure to 80 stock exposure [Music] Googling rank in the mid to top end of the pack this underscores the important role asset allocation plays in portfolio Construction finding the right mix or asset allocation is a critical step in ensuring your portfolio performs then aligned with your risk tolerance and produces more consistency in Returns on the way to achieving your long-term financial goals thank you