Given the current global uncertainty and resulting impact on domestic and international investment markets, I felt that further discussion was warranted.

Firstly, let’s discuss the concept of switching from one asset class to another based on a belief that one will outperform the other, referred to as a tactical asset allocation methodology.

Example

Some investors may believe that Australian equities will fall further in 2016 and reduce their shareholdings accordingly, placing the proceeds in cash. Here are the issues with it:

• What if shares actually recover? Then what? Switch back into equities and away from cash? What if, after reversing your decision, equities then fall? Your portfolio will likely never recover.

• Most investors make decisions with their hearts, not their heads. Carrying on the above example, a decision to switch from Australian equities to cash will generally be made after experiencing volatility in the sharemarket. The heart says “this is not good” and the only way to make it stop is to get out. This is precisely the time to stay invested.
• Warren Buffet, arguably the world’s most successful investor, put it best when he said “Be fearful when others are greedy and be greedy when others are fearful”. This means, sell when others are buying and buy when others are selling.
• A tactical asset allocation is a high risk strategy suited for investors who believe that they can pick outperforming markets and are willing to take on the additional risk. Hewison Private Wealth believes that the strategy exposes our clients to far too much risk.

A Better Way to Invest and Protect

For 30 years we have successfully managed our client’s portfolios via strategic asset allocation, built for the long term.

Based on the individual and unique long term objectives of the client, we construct an asset allocation that can achieve these objectives without the need to alter it, regardless of which market is performing and when.

The absolute key to its success lies in the re-balancing of the asset allocation. As asset classes’ rise and fall, they must be re-weighted back to the original asset allocation. Simply speaking, it means taking profit from one asset class and investing in another that has not performed so well during that period.

Without ‘timing’ the market, the strategy by its nature results in a ‘sell at the top, buy at the bottom’ approach without the risk of market timing.

Individual stock selection becomes less important, in favour of disciplined portfolio re-balance.

The information provided in the above article is general in nature and does not take into account your own specific circumstances.  You should seek the advice of an appropriately qualified professional prior to acting on any of the strategies discussed.