The three main tools in an investor’s toolkit are asset allocation, stock selection and market timing.
Of these, the most important is asset allocation. Whilst investment is never an exact science one of the few things that is broadly accepted by almost all academic studies is the primacy of asset allocation in the investment process.
Asset allocation should therefore take centre stage in most portfolios, although all too often investors become seduced by the allure of security trading or market timing moves, which are much more exciting and interesting to discuss with friends. Nevertheless, asset allocation decisions will almost certainly be the decisive factor in whether investors ultimately meet their investment aims.
As with much of investment, the basic principles of asset allocation are simple but that does not make it easy. No single investment strategy can outperform in all market conditions, and selling the worst recent performers in favour of an increased exposure to the best recently performing asset class is almost certain to lead to disappointment down the line.
Ultimately, asset allocation decisions should be dictated as much by time horizon and attitude to risk, alongside the merits of the different asset types.
With the new ISA allowance now available and stock markets across the world becoming increasingly volatile, the importance of a well planned asset allocation cannot be overstated.
If you would like to discuss your current portfolio or receive information on our discretionary investment management service we would be happy to meet with you.
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