The strategy we employ in allocating our clients’ funds, is dictated by their appetite for risk. The financial advisor has a spectrum of assets to choose from that increase the investor’s risk exposure to varying degrees. On one side of the spectrum, an investor may hold a more volatile asset and on the other he or she may be holding funds in an investment that has no volatility at all.
It is the advisor’s responsibility to develop the right mix of these assets that accommodates the clients risk tolerance. A more conservative investor will generally require a higher percentage of their portfolio to be allocated in assets that are less volatile while more aggressive investors will generally be allocated in assets with more volatility.
Neither diversification nor asset allocation guarantee against loss. They are methods used to manage risk.