Asset Allocation Strategy

Asset allocation strategies are what most people think of as "traditional investing." 

 

Investment dollars are split among various asset classes with different return and risk profiles, seeking diversification, and held statically with some minor, usually annual, adjustments.

Asset classes typically include stocks, bonds, and cash, and can also include real estate, commodities, and alternatives such as hedge fund strategies, "hard assets", currencies, and many others.

*See disclaimer below

What investors should know:

  1. Allocation strategies performance is determined by the general performance of the markets, not by any security selection or active allocation changes by the manager.  (Those strategies would fall under "Risk-managed" asset allocation.)  You should make your advisor clarify which he practices.  Any value-added attempts by a manager explicitly introduce risk for attempted outperformance beyond the asset class general performance.

  2. Performance projections for asset allocation strategies typically assume historical average market performance.  This is an inaccurate assumption, actually a dangerous one.  Statistically, a requirement of a time frame of 40 years is necessary for that assumption to have any degree of validity.  Most investors realistic time frame of the saving/spending cycle is 20 years, so historical 20 year rolling average returns are more appropriate to consider in financial planning.  For US stocks, for example, that result ranges from +18% to +1.5%, not the historical 9% commonly referred to and assumed to transpire.

 

 

Pros:

  • No manager risk

Cons:

  • Return stream may put retirement planning more at risk

At Reset IM we do not believe the time frame required for asset allocations strategies to meet investors' retirement goals are consistent.  We therefore think managed risk strategies are best for most investors.  There is of course risk to that view.  That strategy, or we the manager, could simply not perform well.  That is a reality.  We are willing to admit it.  For investors that would rather take pure market risk, with no manager risk, we are happy to offer that strategy, and happy to do so at very low fees, because it doesn't require a lot of resources.  We would bet our fees are lower than a large majority of advisors and think very low fees are appropriate for investors that wish to follow this prevalent strategy.

Disclaimer:

Reset IM, is registered with the Commodity Futures Trading Commission as a Commodity Pool Operator and as a member of the NFA as of June 11, 2019 and is a member of the National Futures Association.

 

Investors should be aware there is a risk of loss in trading futures and commodities.