Investment Analysis and Asset Allocation

Analysis of your investments starts with determining three things about your assets:

  • what you have
  • how they works
  • what to expect from them (how they may behave).

Understanding your existing investments is a key to any analysis of your current financial situation. You should have a good understanding of what you have and how your investments work together, before considering any changes to these investments. 

Then, when you decide to make investment changes you should consider how the changes will affect your overall portfolio. This includes determining whether the proposed changes align with your financial objectives and risk tolerances.

In summary, you should consider whether any proposed changes to your portfolio will reflect your particular investment philosophy.

Classifying Your Investments

Your portfolio is a collection of assets held for investment purposes, it can be viewed in several ways.  

Each view of your assets helps you answer different questions about your overall planning. There are three views, or ways to classify your investments:

  • Assets Classes – What you have (asset classes are groups of investments with similar characteristics and similar investment categories).
  • Investment Styles – How they works (Investment styles are groups of assets that have similar cash flow characteristics).
  • Volatility Classes – What to expect/how they behave (Volatility classes are groups of investments that have similar risk and return relationships and respond to economic market situations similarly).

The best analysis of your investments is achieved when your entire portfolio is viewed from each of these three perspectives separately. This method provides more insight than trying to combine all of these characteristics into one single analysis or view.