What is an Asset Allocation Analysis?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 10 February 2020
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An asset allocation analysis is a type of investment strategy that makes it possible to evaluate the current structure of an investment portfolio in relation to the investor’s personal financial goals, or to aid new investors in determining the most efficient combination of assets for inclusion that will aid in realizing stated financial goals. In both instances, the process calls for not only assessing the viability of each asset contained within the portfolio, but also establishing the right balance in terms of value between those different types of assets. As part of the financial planing process, an accurate asset allocation analysis can go a long way toward minimizing risk while paving the way for reaching investment goals.

One of the key factors in any asset allocation analysis is accurately determining the risk tolerance of the investor. This means identifying how much risk the investor is willing to assume in order to generate a certain level of growth or return on the investments over a period of time. Doing so not only helps to determine what type of investments are included in the portfolio, but also how much of the percentage of the portfolio is devoted to each class or group of assets. For example, a very conservative investor may include real estate, stock options, and bonds within the portfolio, but choose to allocate more assets to bonds and real estate, while devoting less to the more volatile stocks.


The process of asset allocation analysis helps to identify necessary changes in the current asset mix, if the investor is to remain on target with achieving a specific investment goal or several different goals. By conducting the analysis on some type of consistent basis, it is possible to identify the asset classes that appear to have undergone some change that will remain in place for an extended period of time. This may necessitate making some changes in the percentage allocated to each class if the investor is to protect the overall value of the portfolio and continue to move forward. By shifting some of the allocation to a class that is expected to hold its value over the long term, the investor not only avoids sustaining losses in a class that will be depressed for some period of time, he or she also enhances the chances of increasing the overall return on the assets held.

Diversification is often the key to any successful investment portfolio. A properly conducted asset allocation analysis makes sure the balance between different asset classes is maintained and the investor is able to generate the most lucrative returns from his or her investments. While the investor may choose to conduct the analysis personally, many brokerages and financial planners will perform an analysis on behalf of the client, both in terms of assessing the current mix and compiling suggestions for changes that the investor can consider and possibly implement.



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