Asset Allocation

The asset allocation (English), German asset allocation or portfolio structuring, is the division (diversification) of an invested asset into different asset classes, Such as bonds, equities, real estate, currencies and precious metals.

The classic approach ("Markowitz paradigm") in asset allocation assumes that a certain sum is needed in retirement. A required yield is calculated from this. In addition, the returns and risk (volatility) are determined based on the historical data of the investment classes and the asset allocation is determined in such a way that the return on the investment portfolio corresponds to the required yield. This is done by dividing the investment capital into safe and risky assets, with the higher the required return on risky investments. For the risky part of the investment, an attempt is also made to eliminate avoidable risks by means of models such as the portfolio selection and the Black-Litterman method by the greatest possible spread. Since the returns of the individual values ​​of different asset classes frequently do not move parallel to one another, it is thus possible to achieve a positive performance of the assessed funds, although there is a negative development in some parts of the financial investment. In this way, the risk can be minimized with a given expected return or the return can be maximized with given risk.

A competing view is the Merton paradigm. It holds historical estimates for errors and instead determines the expected capital market risk and the expected future returns from capital market prices using financial-economic models. It is based on a given risk waiver by the investor who is weighed against stochastic optimization procedures against the expected return and expected risk (see life cycle model), resulting in a consumer strategy and an asset allocation. Edit source text Weblinks Edit sourcetext

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