Asset Allocation Strategies: Maximizing Returns and Managing Risk

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This website is for financial professionals, not the general public. It is not meant to be investment advice, and if a non-professional is viewing it, they should consult with their advisor about their specific situation. The opinions herein are those of the author and do not reflect the policy of any associated organizations.

Asset allocation for volatile markets

Navigating Turbulent Waters

In times of market volatility, a well-diversified investment portfolio can be a lifeline. Asset allocation, the strategy of spreading investments across various asset classes, plays a crucial role in mitigating risk and maximizing returns.

Key Strategies for Volatile Markets:

Diversification:

- Asset Class Diversification: Invest in a mix of stocks, bonds, and alternative assets to reduce risk.
- Geographic Diversification: Spread investments across different countries and regions to minimize exposure to specific economic events.
- Sector Diversification: Invest in various sectors to reduce the impact of industry-specific risks.

Ibbotson Time Series, consistency of market returns
Sharpe Ratios and managing risk
Seasonality and volatility

The flaws of quarterly rebalancing

Rebalancing:

Regularly review and adjust your portfolio to maintain your desired asset allocation.
Rebalancing helps to lock in profits, redeploy capital to undervalued assets, and mitigate risk.

Risk Tolerance Assessment:

Understand your risk tolerance and adjust your portfolio accordingly.
A higher risk tolerance may allow for a greater allocation to equities, while a lower tolerance may favor fixed-income investments.

More on seasonality and volatility

How the US Tax Code works against traditional asset allocation approaches

You aren’t working with institutions

Let’s try another approach

Long-Term Perspective:
- Maintain a long-term investment horizon. Short-term market fluctuations should not deter you from your long-term financial goals.
- Focus on your investment objectives and time horizon, rather than reacting to short-term market volatility.
Professional Advice:
- Consider consulting with a financial advisor to develop a personalized asset allocation strategy that aligns with your specific needs and goals.
- Collect losses whenever you can find them.
- Have a “cash raise discipline”
- Know where you are going, just maybe not when you are going to get there.

Communicating This to Clients

Ibbotson time series once again

The four percent rule isn’t just for IRAs

The bigger the account, the more conservative you need to manage it.

The False Hope of Global Diversification

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