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Strategic asset allocation

A personalized approach to diversifi cation and risk management

An Optimal diversifi cation assets The lower your risk tolerance, the Asset allocation is an approach in offset volatility more comfortable you should be with which you invest in different asset bonds or and money markets. categories—mainly cash, fi xed Investment 1 income and equities. By diversifying Balancing risk and return your money across and within these Asset allocation can help you , you can help minimize balance the risk and return in your risk and potentially improve your portfolio. In addition to their varying Investment 2 overall returns. advantages and disadvantages, How you allocate your assets hinges equities, fi xed income securities and on several factors, including your cash respond differently to the same fi nancial objectives, attitudes Generally, downturns in one market conditions. They typically do toward risk and investing, desired investment class may be tempered or not move in tandem. For example, return, age, income and tax bracket, even offset by favorable returns in when prices are rising, time horizon and even your belief another. Just as using different asset prices may be falling (and vice-versa). in what the market will do in the categories within a portfolio can help reduce your risk, your choice of near term and long term. Whether Effective asset allocation you’re investing for retirement, a individual investments within an An effective asset allocation child’s college education, or for asset class may do the same. For strategy tailored to your individual other goals, asset allocation is an example, choosing from situation is one key to long-term investing strategy. different industries (i.e., automotive, retail or utilities) within an asset investment success. category can be less risky than Consider the following: Diversifi cation: investing all of your stock allocation the main principle behind in one industry or company. • Asset allocation is responsible asset allocation for more than 90% of variations The underlying principle in asset in portfolio performance. Risk tolerance allocation is the documented • When assets are invested over It is important to determine your observation that different time, the key driver of variance risk tolerance before allocating categories of investments have of portfolio returns has been the your assets. Different investors varying rates of return and levels asset allocation decision. of price volatility over time. By react differently to the same market diversifying your investments over movements because of their different • Ineffective diversifi cation several asset classes, you may comfort levels with risk. Are you simply adds more securities, reduce risk and volatility while comfortable taking bigger risks in without enhancing returns or achieving strong returns. exchange for potentially bigger moderating risk. rewards? Or would you rather “play • There is no single asset it safe” with your money? allocation model to fi t every In general, the higher your risk investor, or for every stage tolerance, the more comfortable you of life. The asset allocation should feel about owning equities. decision is a personal one.

Investment and products offered through RBC Wealth Management are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affi liate, and are subject to investment risks, including possible loss of the principal amount invested. Page 2 of 2 Strategic asset allocation, continued

Key determinants of variance Time horizon Review and rebalancing for portfolio returns Each of your goals has a time The asset allocation you utilize today horizon—the number of years before may not be appropriate for you in you’ll need the money you invest. the future. This can be the result of When planning for retirement, it is economic fluctuations and changes also wise to consider how long you’ll in your investment objectives or your likely need the money to last once personal or financial circumstances. you begin spending it. The longer your In addition, any growth or decline investment time horizon, the more within asset classes may cause volatility risk you may assume. With your asset allocation ratios to shift. a longer-term investment horizon, For these reasons, it is important you can ride out several economic to review your asset allocation cycles, and your highs should periodically and rebalance your generally outweigh the lows. A shorter portfolio from investments in asset investment horizon may require a classes that have been in favor into n Strategic asset allocation more conservative approach. You investments in lower performing asset n Security selection may want to allocate investments to classes to ensure your investments n a lower volatility mix of asset classes remain in a suitable mix. n Other as the time approaches to convert Source: Brinson, Singer and Beebower. your investments to cash for your Journal, 1991 particular goal.

Contact your financial advisor to discuss the benefits of strategic asset allocation.

Asset allocation, diversification, and rebalancing does not guarantee a profit or protect against a loss in declining markets. © 2021 RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC. All rights reserved. 21-68-01795_6842 (07/21)