Understanding Asset Allocation

Asset allocation to help reduce risk and improve return

Choosing an Appropriate Asset Management Program
Programs Using a Strategic Asset Allocation Approach
Programs Using a Tactical Asset Allocation Approach
Who should have an asset management program?

What is asset allocation and why is it important?

Simply stated, asset allocation is diversifying your money among different kinds of investments. It is an important way to help offset volatility among your investments and, therefore, to help manage the risk of your portfolio.

In other words, when one type of investment is performing well, another type may not be doing as well. The difference in this performance can be due to a range of circumstances, such as political, economic or industry issues. To even out the effects of the different performance results of each asset in the portfolio and help provide for less volatile investment performance across an entire investment portfolio, many investors allocate their portfolio among different asset classes, or types of investments.

Indeed, research has shown that it is more important to select an appropriate asset class than to choose the best individual stocks or bonds. Primary asset classes include:

U.S. Stocks (Large, mid and small capitalization)
U.S. Bonds
International Stocks
International Bonds
Cash or Money Markets
Real Estate or Other

Your Dearborn & Creggs financial representative can guide you through the many factors involved in your asset allocation decision. This process should include a discussion about the risk-reward relationship of investing, which means the higher the potential return from a particular kind of investment, the higher the potential risk.

Your Dearborn & Creggs financial representative will consider how much risk you are comfortable with and will look at your financial situation and objectives to assess the kind of investment return you should seek.

Based on this information, your Dearborn & Creggs financial representative can help you determine your "investor profile," or where you fall in the risk-reward investment spectrum. This spectrum ranges from conservative to aggressive with several categories in between.

Choosing an Appropriate Asset Management Program

To help investors develop the most appropriate asset allocation and risk management strategy for their situation and objectives, Lincoln Investment Planning, Inc. makes available asset management programs, using mutual fund investments, from eight leading investment advisors, three strategic and five tactical. The programs include:

Programs Using a Strategic Asset Allocation Approach

Ibbotson Associates, Inc.
The Ibbotson programs are based on a long-term strategic approach that utilizes an investment concept called mean-variance optimization that takes into account historical and current market data. The Ibbotson Strategic Allocation and Ibbotson Strategic Plus programs offer eight asset allocation portfolios, which range from conservative to aggressive.

The mix of mutual fund investments can include small- and large-cap domestic equities, international equities, domestic bonds and money market instruments. The minimum investment is $10,000 for the Ibbotson Strategic Allocation program and $25,000 for the Ibbotson Strategic Plus program. The minimum investment for Ibbotson Master is $150 per pay period.
Russell Group
Russell aims to reduce risk and provide benchmark returns both collectively and over time by using a multi-asset, multi-style, multi-range approach. Russell's Strategic Allocation and Tax Managed Strategic programs offer a total of 12 asset allocation strategies: four model portfolios with a mix of stocks and bonds, four all-equity portfolios and four tax-managed portfolios. The minimum investment is $35,000.
Goldman Sachs
Goldman Sachs bases its asset allocation decisions and portfolio structure on analysis of expected future returns, not simply a record of historical results. The Goldman Sachs Global Allocation Program offers five asset allocation strategies, ranging from conservative to aggressive. They can invest in small- and large-cap domestic equities, international and emerging markets equities, real estate securities, domestic and international bonds, and money market instruments. The minimum investment is $25,000.

Programs Using a Tactical Asset Allocation Approach

ICON Advisors, Inc.
ICON determines which equity market sectors are undervalued and allocates those sectors that are deemed undervalued relative to technical indicators. The ICON Sector Allocation Program offers eight asset allocation strategies, which invest in domestic sectors, international sectors and a combination of both. The minimum investment is $25,000.
Meeder Financial
Meeder uses technical market indicators to gauge risk/reward relationships in the financial markets, as well as quantitative analysis to determine the sectors or investment styles that show the greatest potential for outperforming the broad equity markets.

The Meeder Tactical Allocation program offers four asset management programs, which can invest in equity, fixed income or money market instruments. The minimum investment is $10,000 to $25,000, depending on the strategy. The minimum investment for Meeder Master is $50,000.
Clark Capital Management
Clark Capital Management uses econometrics, the mathematical modeling of financial markets, to determine which asset classes and investment styles have the greatest potential for positive returns in the intermediate and near term. The Clark Capital Management approach is purely quantitative and based on over 30 years of market research.

Clark Capital Management's Tactical Allocation programs offer a total of five asset allocation strategies, which can invest in equity, international equity, bond and money market instruments. The minimum investment is $10,000 to $25,000, depending on the strategy. The minimum investment for Clark Capital Management Master is $50,000.
CLS Investment Firm
CLS believes risk budgeting is a critical element in creating model portfolios. An investor's risk budget is based on their individual financial goals, ability to handle risk and overall time horizon. Once a budget has been assigned, that risk cannot be overspent nor can it be underused. Risk budgeting manages the level of risk within an investor's portfolio.

The CLS goal is to weather down markets, take advantage of up markets and find profitable industry segments in a sideways market. By maintaining a risk budget and making trades based on both asset class and portfolio risk, CLS is able to capitalize on areas of growth and underweight areas of risk.

CLS utilizes a combination of their own proprietary funds consisting of ETF funds and multiple other fund families to make up their portfolio. The minimum investment is $25,000.
Advanced Asset Management Advisors (AAMA)
AAMA's portfolio management discipline is independent and forward-looking, relying on proprietary research and insight. Their discipline focuses on multiple factors including relative and historical price to earnings, earnings momentum, style and sector performance, industry and sector characteristics, mutual fund composition, relative strength and mutual fund characteristics.

AAMA offers two asset management programs investing in stock, cash and bond mutual funds with a minimum investment of $25,000 for Balanced and $10,000 for Equity Growth. The minimum investment for AAMA Master is $50,000.

Who should have an asset management program?

Anyone with money to invest who wants to help reduce the risk of investing should consider an asset management program or strategy.

Dearborn & Creggs Can Help

Diversifying your money among various asset classes is a smart investment strategy. Diversification can help smooth out your potential risk, help to make the investment performance of your portfolio less volatile and may increase your investment return as well.

Dearborn & Creggs financial representatives have the expertise to help you develop your asset allocation program. After conducting an in-depth analysis of your financial situation, objectives and risk tolerance, your Dearborn & Creggs financial representative will make recommendations on the asset management program they feel is most appropriate for you.

Your Dearborn & Creggs financial representative will monitor your strategy to help ensure that it reflects changes in the financial markets and your needs. We look forward to talking to you further about this very important part of your investment program.

If you choose an asset management program, you will receive an investment asset management agreement. Read these carefully for more complete information, including costs, before you invest or send money. The principal in your investments is subject to share value fluctuation. Therefore, investments, when redeemed, may be worth more or less than their original value.

There is no assurance that a diversified portfolio will produce better returns than an undiversified portfolio, nor does diversification assure against market loss. Small- and mid-cap stocks may be subject to a higher degree if risk than more established companies' securities. The illiquidity of the small- and mid-cap markets may adversely affect the value of these investments s those shares, when redeemed, may be worth more or less than their original cost. International investing involves special risks, including the possibility of substantial volatility due to currency fluctuation and political uncertainties. An investment in a money fund is not insured or guaranteed by the FDIC or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

Fees for asset management programs are in addition to, but not limited to: (1) any transaction costs charged by the mutual fund company; (2) any internal management fees or other expenses charged by the mutual fund; (3) and any retirement plan custodial recordkeeping, reporting or administrative fees. Fees will impact the performance of your investment.