INVESTMENT CONSULTING-->Asset Allocation Study

"It is generally agreed by theoreticians and practitioners alike that the asset allocation decision is by far the most important choice made by the investor". -William F. Sharpe, Nobel Prize winner

Many people feel that in order to be a successful investor, one must be able to pick the right security at the right time. Little thought is put into which asset class, or combinations of classes, are most appropriate for them (stocks, bonds, real estate, cash, etc.). Research and practical experience have shown this type of investing is rarely successful.

The asset allocation decision is by far the most important judgment any investor will make. Various studies have found this factor to contribute up to 95% of a portfolio's return. Security selection, market timing and other elements make up the remainder. So, instead of asking for the right stock or bond at the right time, fiduciaries and serious investors should concentrate on the proper mix of asset classes that will give them the greatest return relative to their level of risk. It is important to place emphasis on this because if the decision is wrong on the 95% factor, the investor will not make up the difference by being right on the other 5% factors.

At PENTEK Advisory Group, we conduct asset allocation studies in a very detailed manner. We first evaluate a portfolio's risk and return requirements, time horizon and relevant constraints. We then propose optimal asset allocation strategies against the backdrop of the capital markets. These studies include items such as standard deviations, best and worst case scenarios within a given confidence level, correlation coefficients and sensitivity analysis.

In summary, asset allocation is not something an investor can choose to do or not to do. The investor must proactively decide upon an asset allocation specific to their situation or the collective activities of their money managers will determine one by default. The services of PENTEK are designed to emphasize the importance of asset allocation in the investment decision.