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Asset Allocation – More important than ever

Here we go again. I’m beginning to wonder whether we’ve actually learnt anything.

We are now hearing the familiar cries of “Australian shares have run their course. Where to next? International equities? Property?”

Some investors and financial advisers have begun asking these questions off the back of recent sharemarket gains, with the ASX currently sitting at around 5,950 points. They suggest that because we are nearing the previous ASX peak of 7,000 points in October 2007, Australian shares are essentially fully priced and it is now time to look elsewhere for exceptional returns.

Now to begin with, the aforementioned previous market high was more than seven years ago. History tells us that at some time in the future the previous high will be surpassed. The long term average growth rate suggests that we should have surpassed it by now anyway.

I suspect some of the cries will also come from investors who went to cash at the bottom of the global economic crisis (GFC) and have stayed there ever since. They did this because they either had bad or no advice during this time. While I sympathise with them, this was always going to be a terrible mistake and now historically low interest rates have well and truly bitten.

Further to this, there are also investors and financial advisers who effectively gamble from one year to the next, attempting to pick the best performing asset class and investing all that they have, or all that their clients have, in a single asset class.  Now they are worried that Australian shares have run their course and are looking for the next asset class to outperform.

This is called dynamic/tactical asset allocation, or ‘timing the market’ and it is a recipe for disaster. Sure, they may get it right here or there, but for the most part it is nothing more than an educated guess.

Hewison Private Wealth has experience spanning 30 years, which has seen many market crashes, corrections and recoveries, teaching us that it’s the long term strategic asset allocation that weathers all the storms.

Strategic asset allocation involves establishing a diversified asset allocation which is designed to meet the long term needs of the individual. Importantly, the asset allocation does not change unless the client has a change of circumstances.

It then becomes a case of re-balancing the investments back to the set asset allocation when certain asset classes perform either positively or negatively. The result is that investments are sold at the top and purchased at the bottom. The gamble is removed.

It may not be as exciting as trying to pick the next big thing but, in addition to providing very sound technical advice to our clients, it works.

The information provided above is general information only and individuals should seek specialised advice from a qualified financial adviser. Please contact Hewison Private Wealth for more information.

 

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.au

Please note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.