Abstract
Asset-liability management (ALM) provides a risk-management technique that focuses on both sides of an investors balance sheet, in contrast to traditional asset allocation approaches, which tend to only emphasize investor assets. This article presents an application of ALM for financial planners, along the lines of Jones and Brown (2009), using an example of an individual investor who is seeking an asset allocation to best meet future spending needs. This ALM methodology determines the fixed-income exposure required to fully or partially immunize an investor's liabilities, thereby reducing the volatility of the assets required to fund the investors liabilities and the shortfall funding risk of the portfolio. The result takes into account investor circumstances and market conditions in order to allow a financial planner to better fit an asset allocation to the needs of the investor. The goal of this article is to demonstrate this approach and allow financial planners to use ALM in conjunction with existing asset-allocation practices.