What Is an Asset Allocation Portfolio?

An asset allocation portfolio is a report which outlines the way an investor’s holdings are balanced among different types of risk. While these portfolios can vary widely in size and complexity, most will have some sort of visual aid, such as a pie chart, which provides a quick snapshot of how assets are invested. Typically, an asset allocation portfolio is prepared periodically — and usually quarterly — by a financial professional for a client.

In addition to graphs, there can be several other features in an asset allocation portfolio. Many have charts or spreadsheets which show the performance of each asset over different periods of time, such as the last year and a few quarters. There may be several sheets in this format: some that give a general overview and others with more detail about each kind of account.

Often an asset allocation portfolio will be organized overall by the three primary asset classes: cash, fixed-income, and equities. Cash is simply the liquid assets of the investor. Fixed-income is a low-risk, but also low-yield, type of fund. Equities are stocks and securities which offer the most potential for gain and also the highest risk.

A good asset allocation portfolio will show investments that are balanced in the investor’s preferred mix of risk and investment opportunity. Depending on the volatility of the market, it may be necessary to adjust percentages in order to attain the desired mix of fund investment. In many cases this is done annually, though an investor or finance professional may find it necessary to make changes more often. It is usually not advisable to change the asset allocation more often than once a quarter.

The asset allocation portfolio is typically used as a tool to help an investor make decisions about future investments. If a certain balance is not yielding the desired returns, the investor may decide to change the asset allocation based on market forecasts. For example, if an aggressive investment is deemed to be too risky, some of the funds may be funneled into a fixed income fund.

There are asset allocation mutual funds which aim to provide some of the diversity of an asset allocation portfolio, while offering the simplicity of tracking one fund. While they do not offer the customization of a portfolio with individually selected investments, they can be tailored to certain general characteristics. Some of the most common factors considered include age, anticipated time of retirement, and desired level of risk.