Question: We have spent some time setting out our ‘Asset Allocation' models and we were planning to use a ‘Multimanager' approach as a core holding. Now, with all the fuss over managers moving, and the uncertainty in the market, we wonder, should we be holding off on implementation? SC - Essex
I think the underlying point here is that advising clients to invest in markets that are unstable, or have fallen, is difficult, no matter what the books say. Clients often want to sell out when the asset drops, and buy when it is high. And then wonder why they lose money.
I’m going to tell you what you already know. The key to a successful asset allocation policy is NOT to change it. The research tells us that over 90% of the return on a portfolio is from the asset allocation. If you believe that, then any attempt to ‘time’ the market is in danger of creating a ‘buy high – sell low’ scenario.
Matters can be further muddied when we try to pick the next top fund and to follow ‘star’ managers, especially within a core holding.
As long as you are clear that you are dealing with an appropriate time horizon, so at least five years or more, then my recommendation is to implement your thought through and documented asset allocation strategy as soon as possible with each client that fits the criteria. I accept that key managers moving may make you revisit your selection of funds to use. But once in place, can I suggest you stop tinkering, and get on with your part of the process, which is planning and reviewing?
Sorry to be blunt, but it’s a process of ready, aim, FIRE! It’s easy to get caught up in ready, aim, aim, aim…so try not to!
Be the GP for your clients, concentrate on diagnosis. The best you can do for them is look at their long-term health. Asset allocation and giving up market timing is the equivalent of giving up smoking: cheap, easy and makes a massive difference to their financial health.
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