Developing an Asset Allocation Strategy

Developing a customized asset allocation around your unique return goals balanced against your tolerance for downside risk.

Asset allocation is the process of diversifying your assets among different asset classes such as cash or cash alternatives (e.g., money market funds), fixed-income securities (e.g., primarily bonds), equities (e.g., stocks and stock mutual funds), as well as real assets (e.g., real estate) and complementary or alternative strategies (e.g., hedge funds).* How you divide your assets among these broad categories often affects the fluctuations in your portfolio’s value and overall performance.

By allocating assets across several categories, you can potentially reduce risk and increase the chances of attaining your long-term goals. Your time horizon is critical in determining your proper asset allocation. Proper asset mixes for a portfolio with a three-year time horizon could differ notably from one with a 10-year time horizon, depending on your ability to accept volatility in your portfolio. Other factors that affect your personal portfolio’s allocation include: your net worth, financial needs, investment objectives and age.

Diversification within asset classes is also critical when assembling a portfolio that aims to achieve your investment goals. Through proper diversification, we can target a stated return objective for a given risk level. Asset allocation and diversification do not guarantee against loss; they are methods used to help manage risk.

_{*Alternative investments, such as hedge funds, private capital/private debt funds and private real estate funds, are not appropriate for all investors and are only open to “accredited” or “qualified” investors within the meaning of the U.S. securities laws. They are speculative, highly illiquid, and are designed for long-term investment, and not as trading vehicles. There is no assurance that any investment strategy pursued by the Master Fund (and thus the Feeder Fund) will be successful or that the fund will achieve its intended objective. Investments in these funds entail significant risks, volatility and capital loss including the loss of the entire amount invested. They are intended for qualified, financially sophisticated investors who can bear the risks associated with these investments. Investors should read the fund’s offering documents prior to investing.}

_{Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns nor can diversification guarantee a profit in declining markets.}

Market conditions can determine the choice of strategy

Certain asset classes can be appropriate under different circumstances or for different investment objectives

Catastrophe

Cash
U.S. IG fixed income
Commodities
Hedge funds
Managed futures

Income

U.S. IG bonds
U.S. high-yield fixed income
International bonds (DM/EM)
Large/Mid cap equity
DM equity
Real estate

Volatility

U.S. IG fixed income
DM fixed income
Hedge funds
Managed futures

Liquidity

Cash
U.S. IG fixed income
DM fixed income
Large cap equity
DM equity

Inflation

TIPS or short-term fixed income
DM bonds
Domestic equity
International equity (DM/EM)
Real estate
Commodities

Growth

U.S. high-yield fixed income
EM fixed income
U.S. equity
International equity (DM/EM)
Real estate
Private equity

_{Source: Wells Fargo Investment Institute, as of December 31, 2020. IG = investment grade, DM = developed market, EM = emerging market, TIPS = treasury inflation-protected securities.}

_{Hedge Funds, Managed Futures, Real Estate, and Private Equity funds are not suitable for all investors and are only open to “accredited” or “qualified” investors within the meaning of U.S. securities laws. Equity, fixed income, foreign, cash alternatives, and alternative investments are materially different investments with materially different risk and reward characteristics. These risk and reward characteristics should be evaluated carefully before making any investment decision.}

_{Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.}

Helping You Define a Successful Investment Strategy

We believe in prioritizing and managing cost effectiveness, taxes, and their impact on returns, as well as the investment risk. We believe this approach can help ensure a successful investment strategy.