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Asset Allocation
Using a top-down approach to diversification called Asset Allocation
we design your portfolio using a Strategic Mix of asset types based on your risk-tolerance and formulate an expected range of returns. 
An asset type (also called an asset class) could be something like Canadian stocks, or US real estate and so on.
In formulating an expected return, we may find that the returns of a certain asset class tends to fluctuate from negative to positive in the short-term but eventually settle at some average over the long-term. If this fluctuation is too volatile for your risk-tolerance we would reduce its' weighting in the portfolio or substitute an asset class that has exhibited a lower fluctuation in returns based on it's historical data.
We rely on the historical data of each asset class to determine a range of expected returns over a period of time. 
We seek to construct the "Optimal Portfolio" based on your level of risk-tolerance and we are guided by the work of Nobel Laureate Harry Markowitz, who introduced modern portfolio theory (MPT) to the investment world in the 1952. 

Markowitz found that by combining a set of different risky assets in varying ratios, at defined levels of risk-tolerance, a portfolio could exhibit a more certain range of returns with less fluctuations - i.e. the Optimal Portfolio.

The Optimal Portfolio for an investor's level of risk-tolerance is what advisers will often refer to as a Conservative, Balanced/Moderate, Growth or Aggressive portfolio. Or some variation.

We construct these portfolio using a graph seeking the Efficient Frontier - which the video below, by Investopedia, explains very well.

I didn't make that video. 
The older adult in the video looks nothing like my clients nearing retirement. Just saying
Typical Balanced Profile
The pie chart below shows the typical 40/60 asset allocation of fixed income and equities for an investor with a balanced profile. 

The chart shows broad categories for Canadian, US and International Equities, Fixed Income and Cash.
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Not shown in the chart above are the sub-categories such as Cdn/US Large/Mid/Small Cap Equities, Real Estate, Global Infrastructure, International Equities broken down into Developed markets versus Emerging Markets. Private Equity, Gold position, etc.
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