Asset allocation

Asset allocation

Financial advisers representatives typically encourage investors to diversify their holdings across various asset types to lower portfolio volatility.  

Various asset classes will typically produce variable returns. This straightforward logic explains why asset allocation is a prominent practice in portfolio management. In this way, investors will have a shield to protect them against the decline of their assets. 

Here we provide a complete overview of everything you need to know about asset allocation. 

What is asset allocation?

Asset allocation divides an investment portfolio among different asset categories, such as stocks, bonds, and cash. The allocation of assets is a critical component of financial planning, as it can significantly impact a portfolio’s risk and return. Asset allocation aims to match an investor’s risk tolerance with their investment objectives.  

Asset allocation is a critical decision for any investor, and working with a financial planner is  essential to ensure that the allocation is appropriate for your situation. 

Why is asset allocation important?

An integral part of financial planning- asset allocation aims to balance risk and return by investing in a mix of assets that will provide the highest return for the least amount of risks. 

Many think asset allocation is only for investors with an extensive portfolio. However, asset allocation can help you reach your financial goals even if you have a small portfolio. If you are unsure how to start, many online tools and calculators can help you figure out the correct asset allocation for your portfolio. 

Remember, the key to successful asset allocation is to rebalance your portfolio periodically to ensure that your asset mix stays in line with your financial goals.

What is an asset allocation fund?

An asset allocation fund is a type of mutual fund that invests in numerous asset classes, such as stocks, bonds, and cash. The idea behind asset allocation is to diversify your investments so that you’re not putting all your apples in one basket.  

Asset allocation funds can be a good choice for investors who want a hands-off approach to investing. These funds are managed by professional money managers who rebalance the mix of assets in the fund to keep it in line with the target asset allocation.  

Investors comfortable taking a more active role in their investments may prefer to build their asset allocation using individual stocks, bonds, and ETFs. 

Different types of asset allocation strategies

Asset allocation

There are different types of asset allocation strategies that investors can choose from. The most common types are: 

  • Strategic asset allocation 

It is also known as static asset allocation, which is where you determine what percentage of your portfolio should be in each asset class based on your investment goals. In this case, regardless of the state of the market, you should adhere to the desired asset allocation ranges. However, regular rebalancing is necessary to return the asset allocation to the intended level. 

  • Tactical asset allocation 

Another type is tactical asset allocation, which is where you make short-term changes to your asset allocation based on market conditions. This strategy offers additional adaptability to deal with market changes, allowing investors to put money into higher-return assets. 

  • Dynamic asset allocation 

Finally, there is dynamic asset allocation, a mix of the two previous strategies. It is the most often adopted kind of investment strategy. According to market ups and down as well as economic gains and losses, it allows investors to modify the proportion of their investments. 

  • Age-based asset allocation  

This is a strategy in which the percentage of assets invested in stocks and other growth-oriented investments is based on the investor’s age. This strategy suggests that younger investors can afford to take more risks since they have more time to recover from losses. As investors age, they typically become more risk-averse and shift more of their assets into less volatile investments, such as bonds. 

What should be ideal asset allocation?

There is no perfect asset allocation that will work for everyone. The ideal asset allocation for an individual will depend on several factors, including age, investment goals, and risk tolerance.  

For example, younger investors may be more aggressive and have a higher tolerance for risk, so their asset allocation may be skewed more toward stocks. Conversely, older investors may be more conservative and have a lower tolerance for risk, so their asset allocation may be more heavily weighted toward bonds.  

Asset allocation is a critical decision for any investor, and it is important to work with a financial planner to ensure that the allocation is appropriate for your situation. 

Frequently Asked Questions

The asset allocation decision is just one part of the overall financial planning process. Once an asset allocation is selected, it is crucial to monitor the portfolio and make adjustments as needed. This is because market conditions can change over time, which may impact the performance of the different asset classes.  

The main difference between asset allocation and balanced funds is that asset allocation is a strategy you can implement yourself, while balanced funds are a type of investment product. Asset allocation requires you to decide how to allocate your assets, while professional fund managers manage balanced funds.

A dynamic asset allocation fund is a type of mutual fund that aims to provide investors with a more efficient way to invest in various asset classes. The fund uses a quantitative model to regularly rebalance its portfolio, which means that it is constantly rebalancing its holdings to maintain its target allocation.  

This type of fund can be a good option for investors who want a diversified portfolio but don’t want to monitor and rebalance their holdings constantly.

The return of a dynamic asset allocation fund will depend on the underlying investments within the fund and how these assets are weighted. For example, a fund with a heavy weighting towards equities is likely to see higher returns in a bull market but will also experience greater volatility.  

Asset allocation strategies are used by mutual fund managers to achieve the best possible return for their investors. No matter what asset allocation strategy a mutual fund manager uses, the goal is always the same: to try to maximise returns and minimise risk for their investors. 

Related Terms

    Read the Latest Market Journal

    Financial Sectors Thriving: Top Traded Counters in April 2024

    Published on May 21, 2024 49 

    At a glance: The Federal Reserve (Fed) held interest rates steady at 5.25% to 5.5%...

    One Dollar at a Time: The Potential of Fractional Shares

    Published on May 20, 2024 57 

    Table of contents 1. Introduction 2. Dollar-Cost Averaging 3. Popularity of Dollar-Cost Averaging 4. Small...

    Unit Trusts vs Exchange Traded Funds (ETFs) – Which is better for your portfolio?

    Published on May 20, 2024 54 

    Imagine you are dining at a nice restaurant, feeling overwhelmed by the variety of seemingly...

    Weekly Updates 20/5/24 – 24/5/24

    Published on May 20, 2024 18 

    This weekly update is designed to help you stay informed and relate economic and company...

    What is CFD? With 2 Practical Examples

    Published on May 15, 2024 104 

    In this article, you will learn what CFD (Contract for Difference) is, the costs and...

    What is ESG investing, and why is it important?

    Published on May 15, 2024 100 

    Over the last five years, Environmental, Social, and Governance (ESG) investing has evolved from being...

    What are fixed-income funds?

    Published on May 15, 2024 54 

    In the diverse world of unit trusts, various funds employ distinct investment strategies aligned with...

    Hong Kong Value Stocks Q2 2024

    Published on May 14, 2024 125 

    After a long period of sluggishness, Hong Kong market has begun to pick up. The...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you


    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  


    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066