Asset Allocation

Our approach to investment planning is based on 60 years of rigorous academic research.

According to this research, the most important determinate of portfolio risk and return is asset allocation.

By definition, asset allocation is the process of selecting an optimal mix of non-correlated asset classes for an investment portfolio.

Asset classes are groups of securities with similar risk and return characteristics. Asset classes include common stocks, preferred stocks, real estate, corporate bonds, government bonds, municipal bonds and cash equivalents, just to name a few. However, investors can’t invest directly in asset classes.  To obtain the risk and return of an asset class, investors first need to select an index that is designed to track the risk and reward of the asset class.

For example, suppose the asset class under consideration is called “U.S. Large Capitalization Stocks”. Many different indexes track this asset class, including the Standard & Poor’s 500 Index, the Dow Jones Industrial Average and the Russell 1,000 Index.  These indexes are similar in their makeup and therefore their risk and return would also be similar.  This is called positive correlation.

Some investors may decide to invest in hundreds of U.S. large capitalization stocks in order to achieve the risk and return of the index. However, at Goepper Burkhardt we believe that it is less expensive, and more effective, to select exchange-traded funds and/or mutual funds to replicate the risk and return of an index.

Proper asset allocation creates diversified portfolios that correspond to specific risk levels. This is achieved by selecting an optimal blend of non-correlated assets.

There are hundreds of asset classes to choose from. However, we believe most investors only need to invest in 10-12 asset classes to be successful.

With our clients, we select the asset classes that we think give them the best opportunity to achieve their investment goals while adhering to their desired level of risk. Once we understand a client’s risk profile, we formalize these investment choices in an Investment Policy Statement which guides us in managing the client’s investments.

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Contact Alyssa Herrin

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Contact Dant Goepper

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