For every investor, finding the best asset allocation formula can be a difficult task. Traditionally, most investors choose stocks, bonds, cash, gold or real-estate for their portfolios, in various proportions. In the past several years, most investors went into stocks and the market rewarded them with well but the recent drop is stocks starts to re-open some debates regarding the advantages of building an “All Weather” Portfolio.
The good news is that, with a good strategy, every investor can hold such a portfolio. As with every investment, making a plan and having a good strategy can save you from a lot of pain. So how can you start planning? Think about the assets you would feel comfortable to hold and what portion of your budget can be allocated towards your investment plan. Most “all weather” investors start to invest in a mix of stocks, bonds and gold, in various proportions. Thus, diversification is something you can easily achieve with such a portfolio. Nevertheless, before allocating any portion of your money towards the assets from you short list, keep in mind that correlation is something you don’t want to skip. Mainly, assets tend to react differently to various changes in the market, such as interest rates or consumption. You should always be aware that, for example, bond and stocks perform differently in bear or bull markets and that some assets, like gold, have proven to protect the downside for a lot of investors, especially in bear markets. Would you allocate most of your money towards gold and bonds? Well, that could keep you away from the rally in stocks. Thus, having a well balanced portfolio can seem difficult but there are some tips and tricks that could make your life easier. For example, you can start simple with adding only 2 or 3 assets to your portfolio, like stocks, bonds and gold, in a 40-40-20 proportion, if that makes you feel comfortable for a good start.
If you play it simple since the beginning, managing your portfolio won’t be a difficult task. What you need to do is to keep an eye on how your portfolio performs and what assets tend to represent the biggest portion of your investment. Let’s take the previous example. You start with a 40-40-20 portfolio in stocks, bonds and gold and in six months, as you enjoy a great rally in stocks, the proportions change to 60-20-20. Is such a situation, if you are an “all weather” investor, you would take some profit from stocks and reinvest it either in bonds or gold or in another asset that can be added to the portfolio (like a REIT). Thus, you have just reduced your exposure to stocks and got a better diversification.
If you set your allocation rules right and keep an eye on how your assets perform, managing your portfolio should not be a difficult task. Nevertheless, choose to invest only in those assets you can evaluate and understand correctly.
ENDS
For further information on this topic, please contact:
Carpathia Investing Club
invest@carpathiainvestingclub.org
www.carpathiainevstingclub.org | Cluj-Napoca, Romania, 400680
Please do not consider this article as investing, financial, legal or tax advice. The articles on the website present information of general nature. The content of the website is for educational and informational purpose only.
About Carpathia Investing Club
Carpathia Investing Club (CIC) was founded in 2021. The club is dedicated to support individuals all around the world to better understand and apply investing principles. For first time retail investors, the club’s activity is based on a combined educational and practical approach that emphasizes the need of a proper understanding of the basic principles that govern the stock market before starting to invest. For more experienced retail investors and institutional investors, the club works as a forum that offers the opportunity to discuss and analyze various investment opportunities private and public companies.