Trust Your Asset Allocation
One of the best ways to develop trust in something is to be familiar with its history. As an investor, if you do not have a historical perspective of your asset allocation strategy then you will probably lose sleep worrying about your investment portfolio. Unfortunately, whether you are a retail or professional investor, being constantly bombarded with conflicting financial news stories of both gloom and doom and bullish talk of a rising market will cause anyone to lose faith in a particular investment approach without doing the requisite research. The fear of losing money and therefore failing to meet financial goals is indeed something to fear. So, after having that long talk with your financial advisor and you still feel uncomfortable about the future of the markets then maybe it is time for another history lesson. Tuning in daily and listening to the financial pundits discuss various financial ideas and concepts along with endless predictions about the future of the markets can be overwhelming. However, the best approach is to keep things simple and remain calm.
For the majority of retail investors, a basic asset allocation strategy will do the trick in helping you meet your goals. After sitting down and going over all of the alternative asset allocation scenarios the time comes when you have to decide which scenario is best. The most important thing to do is to stick with your final decision and to rebalance your portfolio at least annually to stay consistent with your asset allocation decision. Rebalancing your portfolio simply ensures that you will buy low and sell high as you trade out of the various investment vehicles that make up your portfolio. With this type of approach there is no need to listen to the news daily or weekly and you can enjoy a stressless life with regard to your investment portfolio. To help you relax, it is helpful to refresh your memory regarding some basics on asset allocation. But remember, keep it simple, stocks and bonds are really all that you need. There are enough choices between, T-Bills, Corporate Bonds, and Government Bonds. Keeping it simple keeps your investment fees low and therefore, your returns higher.
The following examples use data from 1926 – 2021. Taking a look at a fairly aggressive 80/20 combination of stocks and bonds will do the trick if you are looking to be aggressive while trying to avoid the big melt downs that can happen in the stock market. Historically, this allocation gives you just under a 10 percent return from 1926 – 2021. The worst return over a 10-year period was just shy of 1 percent while the best return was near 17.5 percent. The worst 5-year period was about negative 8.40 percent while the best 5-year period was almost 25 percent. These numbers are not that scary considering that this allocation is somewhat aggressive by some standards. We could look at comparable results using various asset allocation examples, but the results would be obvious with more stable but lower returns occurring when more money is allocated to bonds vs stocks. As an example, a 50/50 portfolio had its worst performance over 5-years at negative 2.93 percent with its best performance at nearly 21.5 percent.
Adding more return to the equity side of your asset allocation strategy could significantly improve your investment return with a much better risk profile using our strategy. If you are a regular reader of our articles, then you can appreciate how much you can spice up your returns by using our investment approach developed here at Investoristics. Over the past 20 years, our Investoristics 10 strategy has outperformed the market by more than 10 percent while maintaining a lower risk profile. Just imagine what that could do for you or your organization’s investment portfolio. No need to rely on market predictions, just invest in those stocks that have characteristics that are indicative of future outperformance. Ready to add some spice to your portfolio’s returns, then contact us today?
