Insured Asset Allocation Strategy

Insured asset allocation strategy is a fairly active portfolio management strategy which is ideal for investors with low-risk tolerance but who need active portfolio management. In insured asset allocation strategy investor establish a base portfolio value (often somewhere between 75% and 100% of total capital invested). Total portfolio value is not allowed to drop below this base value.

When the total portfolio value is above the base value, then the investor practices active portfolio management strategies, such as investing in high-profit high-risk instruments like equities to maximize the portfolio growth. But when the total portfolio value drops to approach baseline he/she moves to a passive mode by investing in low/no risk instruments and selling off risky instruments. Many times, when portfolio value approaches base value, it involves total changing of investment strategy by the investor.

There are two major approaches available for insured asset allocation, formula approach and portfolio insurance approach. In formula approach the investor buys more and more low/no risk assets when the portfolio is dropping to the base level. In portfolio insurance approach the investor use futures contracts and put options to insure the base capital. Insured asset allocation strategy is advantageous for investors who want to ensure a minimum standard of living after retirement and who want keep a minimum capital in hand.

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