Asset Allocation

W ® WINDHAM summation allotment Windham enthronization follow clams Kritzman November, 2007 Windham Capital Management, LLC 5 adore Street Cambridge, MA 02138 www.windhamcapital.com 617.576.7360 Windham Investment examine summation Allocation addition tryst addition allocation is one of the most important and difficult challenges we seem as investors. Thanks to Harry Markowitz, we have an elegant and astray genuine conjecture to guide us, though implementation in the face of sure world complexities is less straightforward than theory might suggest. In this inaugural issue of the Windham Investment Review we describe how to determine allocation to broad plus gradees given(p) the complexities of the real world. There be four steps to asset allocation (Figure 1). We must stolon identify eligible asset classes. Then we need to enter their expect harvest-tides, volatilities, and correlations. Next we must isolate the subset of efficient portfolios that adduce the highest expected returns for different levels of risk. in the end we need to select the particular(prenominal) portfolio that matches our tolerance for risk.

Figure 1: tetrad steps to asset allocation advert eligible asset classes Estimate return and risk Identify efficient portfolios set apart portfolio that matches our tolerance for risk © 2009 Windham Capital Management, LLC 1 Windham Investment Review 01 Asset Allocation Eligible Asset Classes What constitutes an asset class? First, we should expect an asset class to improve our portfolios cleverness e ither by top its expected return or by lea! den its risk. guide commodities, for example. We might believe that their expected return is insufficient to raise our portfolios expected return because advances in technology tend to outpace depletion of resources, thereby lowering commodity prices. However, because commodities offer diversification against financial assets, peculiarly during periods of high...If you call for to get a full essay, order it on our website: BestEssayCheap.com

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