Asset Allocation

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Asset Allocation

The investment process revolves around two crucial aspects: asset allocation and securities selection. Perhaps the most important investment decision, however, is the asset-allocation determination, which is a function of each client's investment objectives (risk-return parameters) and the relative attractiveness of competing assets (such as cash, bonds, and stocks). Through the use and implementation of valuation models, analysis of key economic variables, and technical considerations, the absolute and relative attractiveness of cash equivalents, bonds, and stocks can be analyzed and estimated. This means that the investor must display occasionally a willingness to minimize exposure to the bond or stock markets especially when conditions are particularly uncertain, or, when there is a scarcity of high-conviction investment ideas. During a severe bear market, for example, to preserve capital, the key decision will be to exit the stock or bond markets or, perhaps, to implement an investment strategy that might profit by falling stock prices.