Risk budget analysis is conducted to better understand the level of investment risk being taken and how it could be managed, and to determine an appropriate strategic asset allocation considering the risk budget established (as covered in Guideline 7).

Spending the risk budget enables the investing institution to determine an appropriate strategic asset allocation considering the available risk budget, investment assumptions, restrictions on investments and liabilities, and funding policy.

The use of the risk budget as outlined here should be distinguished from dynamic investing (Guideline 12). For example, dynamic investing may lead to a decision to purchase equities based on a view that their price is currently advantageous; such a decision may be at odds with a long-term view to reduce equity exposure due to a maturing of liabilities. These decisions should be taken in consideration of strategies to rebalance risk levels (covered in Guideline 13).