Asset allocation is the centerpiece of the investment policy statement (IPS). Develop strategic allocations and be sure to capture the rebalance needs in the IPS.
In Exponent Philanthropy’s 2016 Foundation Operations and Management Report the following average percentages of asset allocation are based on foundations that reported investment portfolio allocations in FY14.
- Domestic stocks - 48%
- Fixed income (e.g. bonds) – 21%
- Foreign stocks – 13%
- Alternative investment (e.g. hedge funds, commodities, private equity) – 10%
- Cash/cash equivalent – 6%
- Other – 2%
Allocating Your Assets, Updated by Okabena
Creating a Strategy and Plan for Your Foundation's Investing: Developing and Using an IPS
Debunking 4 Myths About Hedge Funds
Hedge Fund of Funds
Quilt Charts Make the Case for Diversification
The Case for Private Equity
Wise to Be Mindful, Unwise to Be Fearful
Lessons Learned From the 2008-2009 Global Financial Crisis
What Are Alternative Investments?
Foundations can take different approaches to rebalancing the portfolio, whether driven by the market, performance, or the calendar.
- Calendar or periodic rebalancing at specified times (monthly, quarterly, or annually)—Rebalancing can be set to return to a specific target allocation each time, or to an allowable range within a set tolerance limit (the latter option provides more flexibility and discretion to outside investment managers, if you are using them).
- Rebalancing whenever the asset mix drifts to the edge of a specified range—Again, this can be set to return to an allocation or to an allowable range within a set tolerance limit.
- Allowing the asset mix to drift, and rebalancing at the discretion of the investment manager
Rebalancing Methodology, Updated by Bernstein
Stress Test Your Portfolio
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Many online resources exist to help you track assets within a portfolio. In addition to tracking individual stocks or bonds, you might want to understand better what the finance professionals look for when they review market data.
Learn more about how the professionals interpret financial market data
The Virtuous Cycle of Building and Spending Assets
Investment Experts Look Back, Ahead
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