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About Selection

Investment Selection


Asset allocation and account segregation are two important concepts that can be used to decide on investment type selection.


Asset allocation is the process of determining how to distribute investments among different asset categories such as stocks, bonds, real estate, and cash. The goal of asset allocation is to balance risk and return by selecting a mix of assets that aligns with an investor's specific financial goals, risk tolerance, and time horizon. By allocating investments among different asset categories, investors can potentially reduce the overall risk of their portfolio while still maintaining a reasonable level of return.


To use asset allocation in deciding on investment type selection, an investor would first determine their specific financial goals, risk tolerance, and time horizon. Based on these factors, an asset allocation strategy can be developed that is tailored to the investor's needs. For example, if an investor has a long-term investment horizon and a high risk tolerance, they might allocate a larger portion of their portfolio to stocks, while an investor nearing retirement with a shorter-term investment horizon and a lower risk tolerance might allocate a larger portion of their portfolio to bonds.


Once an asset allocation strategy has been determined, the next step is to select specific investments to fill each asset category. For example, if an investor has decided to allocate a portion of their portfolio to stocks, they might choose to invest in a diversified selection of individual stocks or a stock mutual fund. Similarly, if an investor has decided to allocate a portion of their portfolio to bonds, they might choose to invest in a diversified selection of individual bonds or a bond mutual fund.


Account segregation, also known as "custody segregation," refers to the practice of keeping client assets separate from the assets of the financial institution or broker that holds them. The purpose of account segregation is to provide protection for the client's assets in the event that the financial institution or broker becomes insolvent or experiences financial difficulties.


To use account segregation in deciding on investment type selection, an investor would first research and select a financial institution or broker that has a good track record of segregation of client assets, and has measures in place to protect the client's assets. They would also ensure that the institution or broker is regulated and compliant with regulatory requirements. Once they have selected a reputable institution or broker, they would then proceed to implement their asset allocation strategy, selecting specific investments to fill each asset category, knowing that their assets are safeguarded and protected.


In summary, by combining the principles of asset allocation and account segregation, investors can make informed investment decisions that align with their specific financial goals, risk tolerance, and time horizon, while also ensuring the protection of their assets.