Asset

Asset allocation refers to the concept of dividing your investment portfolio into specific investment categories by percentage allocation. Analysts use many factors, including historically based risk and return expectations, current market conditions and fundamental and technical trend indicators, to create a base asset allocation model. Such a model usually contains some mix of stocks, bonds, and cash equivalents like money market funds, as well as other types of investments.

For example an investment strategist might, at any given time, recommend a base model with 60% stocks and 40% bonds for a balanced portfolio, or 70% stocks and 30% bonds for an aggressive portfolio. A global asset allocation base model might be a blend of 70% domestic securities, 20% foreign securities and 10% "cash." This is only a representative model, and you should consult with your own investment consultant to find out what his or her current recommendations are.

The term "base model" refers to a generalized allocation model. The second half of the asset allocation equation is more specific. It involves the determination of an individual investor's particular investment parameters, and is used to fine tune the actual securities utilized in one's portfolio. To help you define, as accurately as possible, your own investment criterion, your investment professional might begin by asking you to specify your short and long term financial goals, investing experience, actual expectations, liquidity requirements, tax status, time allotments and risk tolerance.

Of course, we all want capital appreciation, tax free income, complete liquidity and guaranteed safety of principal, but in the real world, you will be asked to prioritize these attributes. This is how you and your investment consultant will reach a comfortable asset allocation mix based on realistic expectations. And remember-there is no such thing as a "risk-free investment." Even guaranteed cash accounts incur purchasing power risk, the risk that your assets will fail to keep pace with the cost of living that your expenses (and lifestyle) are subject to.

Although every investor must determine their own percentage allocation levels, we all fall into some general categories. An aggressive investor is one whose first priority is appreciation of capital, and they are willing to accept greater risk of principal to attain their goals. A conservative investor might be defined as one who is primarily concerned with preservation of capital above all else. Global investors are interested in modestly diversifying their funds in growth and income opportunities abroad, while maintaining a fundamental domestic base for stability. Their intent is to reap the rewards of foreign markets while reducing their overall risk through global diversification.

Asset allocation is a key determinant for wise investors. Think of it as a map. Working with an asset allocation plan provides direction, definable landmarks and a rational set of guidelines within which to work toward your goals. It can help an investor remain steadfast-less easily influenced by short-term volatility-and provides an impetus to ignore temporary distractions. This does not mean that an asset allocation plan is static. Your investment consultant should schedule a periodic review of your portfolio to measure it against prevailing market conditions as well as your own changing goals and financial parameters.

ENB Associates Inc. is a wholly owned subsidiary of Evans National Bank. Securities are offered by O'Keefe Shaw & Co., Inc. Member NASD, and SIPC. Products purchased through O'Keefe Shaw may lose value, are not deposits with obligations of, or guaranteed by Evans National Bank or affiliates and are not insured by the FDIC.