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A Glossary for an Evidence-Based Asset Allocation Strategy

  • Parkview Partners Capital Management
  • Dec 31, 2025
  • 3 min read

Understanding Evidence-Based Asset Allocation


An evidence-based asset allocation strategy is grounded in long-term historical data, academic research, and disciplined portfolio construction principles. Rather than relying on market forecasts or short-term predictions, this approach emphasizes diversification, risk management, and consistency over time.


This glossary defines key terms commonly used when discussing evidence-based investing. Understanding this language can help support more informed conversations about portfolio structure and long-term planning.


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Foundational Asset Allocation Concepts


Asset Allocation


The process of dividing a portfolio among different asset classes—such as equities, fixed income, and cash—to align with financial goals, time horizon, and risk tolerance.


Asset Class


A category of investments with similar characteristics and behavior. Common asset classes include stocks, bonds, and cash equivalents. Alternative assets may include real estate or commodities.


Diversification


A risk management approach that spreads investments across multiple assets, sectors, or geographies. Diversification may help reduce the impact of poor performance from any single investment, though it does not eliminate risk.


Risk Tolerance


An individual’s ability and willingness to withstand fluctuations in portfolio value. Risk tolerance is influenced by factors such as financial stability, time horizon, and personal comfort with volatility.


Portfolio Construction and Management


Correlation


A statistical measure of how two investments move in relation to each other. Combining assets with low or negative correlation may help reduce overall portfolio volatility.


Rebalancing


The process of adjusting portfolio holdings to maintain a target asset allocation. Rebalancing typically involves selling assets that have grown above their target weight and buying those below it.


Portfolio Drift


The gradual shift away from a portfolio’s original allocation due to differing asset performance over time. Without rebalancing, drift may increase risk or alter expected outcomes.


Time Horizon


The length of time an investor expects to hold investments before needing access to the funds. Longer time horizons often allow for greater exposure to growth-oriented assets.


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Risk and Return Metrics


Standard Deviation


A statistical measure of volatility that reflects how much an investment’s returns have varied historically. Higher standard deviation generally indicates greater variability.


Sharpe Ratio


A measure of risk-adjusted return that evaluates how much excess return is generated for each unit of risk taken. Higher values suggest more efficient risk use.


Real Return


Investment return adjusted for inflation. Real returns reflect changes in purchasing power rather than nominal growth.




Behavioral Finance Concepts


Loss Aversion


The tendency for investors to feel losses more strongly than gains of equal size. This bias can influence decision-making during market volatility.


Recency Bias


The inclination to place greater importance on recent events than long-term historical data, which may lead to reactive investment decisions.


Herd Behavior


The tendency to follow the actions of a larger group, sometimes without independent analysis. This behavior can contribute to buying or selling during market extremes.


Implementing an Evidence-Based Strategy


An evidence-based approach often emphasizes discipline, consistency, and long-term focus. Predefined allocation targets and rebalancing guidelines may help reduce emotional decision-making and maintain alignment with goals over time.


Working with a financial professional may provide additional structure, accountability, and experienced perspective when applying these concepts in practice.


Conclusion


Understanding the terminology associated with evidence-based asset allocation can support clearer communication and more informed planning decisions. While the concepts are broadly applicable, their implementation should reflect individual circumstances, objectives, and risk preferences.



Investment advice offered through Stratos Wealth Partners, Ltd., a registered investment advisor. Stratos Wealth Partners, Ltd and Parkview Partners Capital Management are separate entities. Neither Stratos nor Parkview Partners Capital Management provides legal or tax advice. Please consult legal or tax professionals for specific information regarding your individual situation. Investing involves risk, including possible loss of principal. The information presented is for educational purposes only and should not be interpreted as individualized investment, tax, or legal advice. Past performance is not indicative of future results. For more information, please review our Form ADV, available upon request.


 
 
 

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Financial Advisor, Investment Advisor, High Net Worth, Wealth Management, Tax Planning, Risk Management, Financial Coordination, Retirement Planning, Charitable Giving, Columbus Ohio, Parkview Partners Capital Management

291 East Livingston Ave.
Columbus, OH 43215


Phone: (614) 427-2132

Fax: (614) 427-2132

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