Asset Allocation

The Asset Allocation (English), German investment allocation or asset allocation, the allocation ( diversification ) of the assets invested in various asset classes such as bonds, stocks, real estate, currencies and precious metals.

The classical approach ( " Markowitz paradigm " ) in asset allocation assumes that a certain amount is needed in retirement. This a required rate of return is calculated. In addition, we determined based on historical data of asset classes, their returns and the risk (volatility) and tried the asset allocation be set so that the return on the investment portfolio of the required rate of return equivalent. This is done by a division of the capital invested in safe and risky assets, with the risky assets are weighted higher, the higher the required return. For the risky part of the plant is then also trying to eliminate using models such as the Portfolio Selection and the Black- Litterman method avoidable risks of maximum scattering. Since the income of the individual values ​​of different asset classes often do not move parallel to each other, it is thus possible to achieve a positive performance of the money invested, although it is the investment in a negative development at individual parts. Thus, the risk can be minimized for a given expected return or the return is maximized for a given risk.

A competing view is the Merton paradigm. It keeps historical estimates for error-prone and instead determined the expected capital market risk and expected future returns of the exchange rates on the capital market by means of financial and economic models. It is assumed that a given risk aversion of the investor, which is balanced with stochastic optimization methods against the expected return and the expected risk (see life cycle model), so that a consumer strategy and asset allocation results.