Asset Allocation with iShares ETFs

Allocation refers to how an investor divides (or 'allocates') his or her investment portfolio between the various asset classes. For example, typically allocation is between shares, bonds and cash, and within those asset classes there are regional, style and market capitalisation categories. Many investors believe that the strategic allocation of investments across asset classes is more important than which individual securities are owned within the same asset class.

The decision to invest in particular asset classes, and in what proportion, will depend on an investor's risk and return objectives and also his or her time horizon. For example, investors with longer time horizons may prefer to tilt their portfolios toward equity asset classes with higher historical returns (such as small-cap or emerging markets) expecting that the risk of the asset class will average out over time.

Sample Asset Allocation Model 

Developed Markets:  iShares S&P Global 100 iShares S&P Global Healthcare iShares S&P Global Telecommunications iShares S&P Global Consumer Staples iShares MSCI EAFE iShares S&P Europe 350 iShares S&P Asia 50 iShares MSCI Hong Kong iShares MSCI Japan iShares MSCI Singapore iShares S&P 500 iShares S&P MidCap 400 iShares S&P SmallCap 600 iShares Russell 2000 Emerging Markets: iShares MSCI Emerging Markets iShares MSCI BRIC iShares FTSE/Xinhua China 25 iShares MSCI South Korea iShares MSCI Taiwan

A critical component of asset allocation is ensuring appropriate diversification based on an individual investor’s investment objectives, financial situation, needs or risk appetite. Like the phrase "not putting all your eggs in one basket", diversification refers not only to the number of investments in a portfolio, but also to the relationships among those investments, often expressed in terms of their correlations. For example, adding one more technology security to a portfolio of 15 other technology securities is not true diversification.