| Establish Financial Goals |
Determine Ability, Need, and Willingness to Take Risk |
Structure Asset Allocation |
Measure and Monitor |
Re-evaluate and Rebalance |
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- Assess current situation
- Determine future goals
- Calculate required rate of return
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- Willingness: the "sleep test"
- Ability: too much risk may jeopardize current requirements
- Need: do you need to take market risk to achieve your goals?
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- Develop asset allocation that provides greatest probability of achieving goals
- Global diversification at lowest cost
- Capture only compensated risk
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- Compare portfolio to appropriate benchmarks
- Track progress toward goals
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- Critical processes that require discipline
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