Many clients feel this is the most valuable service Raymond James' Financial Advisors offer. The process of selecting an appropriate investment mix drives individuals to organize their investments, while also taking into consideration their particular needs and risk tolerance, as well as various external factors such as inflation, taxes, interest rates and the current economy. On the surface, asset allocation may sound very similar to diversification. Indeed, the principles are related. Both are strategies designed to reduce the overall risk within a portfolio.
Diversification spreads money among several different investments.
By diversifying into a variety of alternatives, an investor can mitigate the chances of suffering a catastrophic financial loss should one of the investments perform poorly. Asset allocation, however, takes this principle a step further. It involves diversifying a portfolio not just among different investments, but among different investment classes such as stocks, fixed income and cash equivalents, as well as real estate and other tangibles. Asset allocation does not eliminate investment risk. It attempts to reduce the investor's exposure to extreme highs and lows in performance.