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Family Wealth Management: Seven Imperatives for Successful Investing in the New World Order by Tom McCullough, Mark Haynes Daniell

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Chapter 10

Reviewing Different Approaches to Asset Allocation

There is a wide range of approaches taken by families to allocating assets to suit their needs, level of sophistication, and scale of wealth.

This range has increased substantially over the past decade as investors have rejected simplistic models that were not able to deliver what they promised, or moved on from more complex models that did not work out in the real world.

Each of the models discussed in this chapter has some benefits and some drawbacks. It is clear, as outlined in the previous chapter, than any model will be most effective if the family’s longer-term goals are at the forefront of thinking and the final model chosen is specifically designed to meet those objectives.

The Evolution of Asset Allocation

The early days of asset allocation consisted mostly of balanced mandates of multiple assets based on income and growth needs of a portfolio (see Figure 10.1).

Figure 10.1 Evolution of Asset Allocation

Source: “The Evolving Nature of Global Asset Allocation,” Lazard Freres, July 26, 2010, 1.

image

Modern Portfolio Theory brought more science and precision to the determination of the optimal level of the mix of assets. Further evolution followed.

Employee Retirement Income Security Act (ERISA) legislation in the United States in 1974 changed the fiduciary requirements of pension funds and drove the development of ...

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