I’ve said it before and I’ll say it again- Asset Allocation. It’s the best way to invest.
I often feel like a broken record, but I believe in AA more and more every day. I’ve been utilizing AA since 2003. Before international and emerging markets were in vogue. And when nobody wanted to own large cap us stocks. And before metals were the flavor of the day. It’s not going to be a silver bullet, because you will also own the worst performing asset class. But it reduces risk, and that is my goal.
Asset allocation is not dead, as some people contend. I am not going to look into a crystal ball and tell you what the future has in store. I will be the first to admit that I don’t know what the best investment idea is for today’s current economic environment. Earthquakes and tsunamis and nuclear reactors are certainly going to have some impact on the market. So will the credit crisis of 2008-09. And the dot com bubble. These things are inevitable. If you want to time the market or try to strategically overweight some of these styles, go for it. But stay true to AA. Keep the majority of your funds in an asset allocation, and dedicate a small percentage to overweight.
There is always going to be a sweet spot. Whether its bonds or blue chips or gold or real estate (and the list goes on), there will always be a sweet spot. And if you own different asset classes- the key is to own all of the asset classes- you will always be participating in that sweet spot. By owning all of these you will always be positioned to participate.
Fund consultants like to require style boxes such as “long-short,” “macro,” “international equities.” At Berkshire our only style box is “smart.”
My goal as an investment adviser is to reduce your risk while maintaining competitive returns. The key to asset allocation is that it reduces risk. Don’t get caught up in the investment of the day.
Asset Allocate. It’s smart.