AllocationADVISOR is an asset allocation and financial planning software tool included in your StyleADVISOR subscription. AllocationADVISOR is a separate program from StyleADVISOR, but portfolios (allocations) selected in AllocationADVISOR can be exported for use in StyleADVISOR.

What can I do with AllocationADVISOR?

Asset Allocation. The choice of asset classes to invest in – asset allocation – is generally regarded as the most important decision in the investment process. AllocationADVISOR uses mean-variance optimization to allocate assets and create efficient portfolios with the lowest risk for a given return. For more information about asset allocation, please see our article Asset Allocation.

Black-Litterman Model. AllocationADVISOR gives users the ability to create return forecasts and make tactical asset allocation bets using the sophisticated Black-Litterman Model. The Black-Litterman asset allocation model, created by Fischer Black and Robert Litterman, is a state-of-the-art asset allocation model that enables investors to blend market equilibrium returns with their unique forecasts in a manner that results in intuitive, well-diversified asset allocations.

Portfolio Projections. AllocationADVISOR uses sophisticated statistical analysis to project possible future outcomes for the portfolios on the frontier. These projections help the user select the appropriate portfolio. They are also a great way to compare current and proposed portfolios.

Monte Carlo Simulation. AllocationADVISOR's Monte Carlo simulation tool combines portfolio return expectations, cash flows in and out of a portfolio and expected inflation to help you project future wealth.

Create and Export Presentations. AllocationADVISOR allows the user to create presentations with sophisticated graphs and tables. These graphics are easy to export to other programs.

AllocationADVISOR is included in the StyleADVISOR suite of software. The menu on the left provides links to pages that show and describe many of the StyleADVISOR and AllocationADVISOR graphs and tables. If you would like to see these same graphs with the manager of your choice and/or get a free demonstration version of the Zephyr suite of software you can click on the "Complimentary Analysis & Demonstration Software" link anywhere in this walkthrough.

What is Mean-Variance Optimization?

Mean-variance optimization was developed by Nobel Laureate Harry Markowitz as a way to create optimal portfolios based on risk and return trade-offs. The optimization uses return, risk and correlation forecasts to combine assets into portfolios that maximize return for different levels of risk. A graph of all of these optimal portfolios is called the efficient frontier. AllocationADVISOR builds efficient frontiers using Harry Markowitz's technique. With it you can examine efficient portfolios, compare selected portfolios to current holdings, view projections of future portfolio performance and more.

What is the Black-Litterman Forecast Model?
The Black-Litterman forecast model is based on the Black-Litterman Global Asset Allocation Model which was created by Fischer Black and Robert Litterman of Goldman Sachs. Forecast returns are formed by combining the returns implied by market equilibrium and the investor’s views on future market performance. Using Black-Litterman return forecasts in mean-variance optimization results in intuitive, diversified portfolios which are relevant for practical investing.

What is Monte Carlo Simulation?

Monte Carlo is a complex mathematical technique that has been used for many years in the space program, automobile manufacturing and in medical research. It estimates the probability of meeting specified goals in the (uncertain) future. In the investment world, Monte Carlo simulation helps you to understand the likelihood of achieving your goals given different investment portfolios while considering cash flows and inflation. You define the cash flows (withdrawals and deposits) and when they occur. Cash flows might be savings for retirement, buying a house, rent income, inheritance, tuition, and/or living expenses. By altering these cash flows, you can explore various “what-if” scenarios in your portfolio.

Who Uses AllocationADVISOR?

Managers, consultants, plan sponsors, financial advisors and financial planners use Zephyr software to create better client and prospect presentations that give them a competitive advantage. Zephyr software is also used to assist companies in gaining a better understanding of their investment management process.

What is included with AllocationADVISOR?

The Zephyr software package includes StyleADVISOR, AllocationADVISOR (an asset allocation program), unlimited support, Zephyr's consulting services and index, manager and mutual fund data.