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Asset Allocation - Performance Matters
An Introduction
Important: Please note that we do not provide advice or recommendations. All our content is informational and our prime focus is on the business community, from whom we welcome constructive comments from individuals irrespective of whether they agree or disagree with anything that we cover on this website.​
Strategies: One way of describing a strategy is to say that it is a way of doing something or dealing with something. Those actions may have a significant influence on both how asset-allocation decisions are made and how performance achievements should be measured.
Performance matters partly because there is a risk/return trade-off whenever investment decisions are made. For example, for strategies where long-term (potentially illiquid) holdings are included, because they are considered to be suitable at the time of purchase, the downside risks in the event of a premature sale, due to a change in circumstances may be an extremely relevant consideration.
Strategies have pre-designed constraints: Having an understanding of which asset classes and what types of investments within those asset class can be included within a chosen strategy is a starting point. For that reason, we provide some examples through some page links, whch can be found here:
When strategies are applied to the management of investments through open-ended funds, two particular terms are frequently used.
The first is 'investment objective', which could be used as a broad definition for 'doing something'.
The second is 'investment policy', which could be seen as a way of 'dealing with something'.
Investment Objective is likely to be maintained for long periods of time, it may almost be seen as set in stone from the perspective of investors, regardless of the merit of the investment objective during good, bad or indifferent times.
Investment Policy is an approach to investing in an asset class that can change occasionally or on a semi-regular basis, but rarely for tactical reasons, to defend against losses in a falling market, because many funds maintain a near fully invested strategy, most fo the time.
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Sometimes the difference between an investment objective and an investment policy is not immediately obvious: This is especially true when a particular investment strategy has been maintained for some considerable time. However, it should always be possible to identify the investible universe of potential holdings, and so to start from there.
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A limited amount of due diligence can always be done, even when the current description of an investment strategy uses terms that now reflect recent changes in terminology. For example:
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Look for statements about investing in an asset class, such as (1) equities that are listed on a stock exchange or (2) companies that have their business based in a geographical region, or in (3) businesses that gain most of their revenue from one region of the world.
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See if the name of the strategy may add some clarification, so, for example, does it specify a business area, such as Real Estate or Technology.
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If investing through a default portfolio, check the mix of funds and other holdings, and maybe scrutinies the underlying funds and holdings, to gain a better understanding of where the money is being invested.
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If 'index tracker-type investments' are included, be aware that true trackers cannot outperform the index that they are being measured against, due to costs and fees.
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Some investment approaches are straightforward while others can be complex. Either way, prospective investors who intend to invest for the longer term might do well to better understand what they will be buying into, before they do.
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Risk can be defined in a number of ways:
On the downside, for example, the risk of a permanent loss of capital is perhaps more important than a temporary loss, even in a rising market.
On the upside, for example, there is the risk of making a nominal profit but securing a return that (1) does not offset inflation and (2) underperforms a benchmark index or peer group.
There is also the risk that a lot of investors may look to sell out at a time when there are few buyers around.
There are also taxation risks, which we won't cover here because we don't wish to drift into regulated territory. However, we will observe that there are PEP and ISA millionaires in the UK who took advantage of the opportunity to secure tax-efficient gains on the way up who, in a falling market, risk losses in a not-so-tax-efficient manner. As such, financial planning techniques can mitigate or hinder tax efficiency and the associated taxation risks.​
There are always market risks, which is a big subject, but it is relevant to note that the same strategy can fail for some and succeed for others.
Before buying, look to consider who bears the risks when the result is an unexpected outcome. The start date and the expected investment time horizon are just two of the many influencing factors that should be important to investors.
Others influencing factors include: (1) a change in personal circumstances or (2) risks that come about as a result of regulatory changes or (3) a dramatic change in market-related risks, perhaps due to war or political influences. including a change in government policy.
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In summary, some investments can be easy to buy but difficult to sell at a good price; that's why it is relevant to consider the motivations of sellers when buying into an asset class or when choosing to stay invested in an asset class. In addition, before investing in any asset class, consider the likely return prospects, in real terms as well as absolute terms, as well as what might cause the risk of suffering a permanent loss of capital.
Finally, for more information about 'Asset Classes' visit our 'Asset Classes' pages, which can be accessed from here:

Be honest, do you trust any third-party to have your best interests in mind, when it comes to investing your money?
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What choices are available?
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Many have far more choices than they appreciate. However, those who choose to manage their own investments can learn from those who manage other peoples investments.
In years gone by, investors who could not (or did not wish to) pick stocks and shares themselves would have portfolios of funds. By investing through funds, both they and their investment adviser (if they had one) could control how the portfolio was managed, without having to stock-pick themselves.
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The term investment adviser should not be confused with the term financial adviser.
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There was a time when it was quite common for in-house investment advisors who picked funds to be an extension of an IFA business. Some IFAs have considerable knowledge about investing, but they also have other financial planning skills, which investment advisers are not required to have.
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Advisory or Discretionary Powers?
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Clients may wish their investment adviser manage their investments on an advisory basis, with the client deciding whether and when to make changes to the portfolio. This type of portfolio management enables the investment advisor to avoid making portfolio changes that might cause complications elsewhere, which a tax consultant or IFA might have identified.
Alternatively, part or all of a portfolio could be managed on a discretionary (power of attorney) basis, with the investment advisor only reporting back to the client as and whenever changes have been made.
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For the last two decades or more, personalised (rather than personal) model-based asset allocation strategies have moved to become the dominant driver of asset-allocation decisions. The individuality of client portfolio management has largerly been lost, except for the well-heeled.
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The bigger players in the asset-allocation market today can only invest in size, and they have increasingly become asset gatherers that can benefit from the economies of scale.
Just like institutional investors, the bigger players in the asset-allocation market no longer need to use run-of-the-mill, publically available funds, particularly when an investment strategy includes unlisted, long-term, holdings. Rather than investing directly through a publically available fund, the bigger players can appoint managers for bespoke mandates, similar to, what are called, 'managed accounts'.
Due to the vast sums they control, the bigger players today are not simply investment advisers that might operate in one domestic market, such as the UK. Instead, they have globally-focused operations that team up with other big businesses.Collectively, they engage in a way that enables them to perform a variety of roles while making use of much of the cutting edge technology called 'fintech' (financial technology) that is available in the investment world.
Regardless of all of the above, it is up to individuals to decide whether their own personal goals are being successfully achieved or not, irrespective of the investment performance results that are achieved.
Asset Allocation - Decisions​
Millions of individuals have asset-allocation decisions made through Workplace Pensions, such as NEST.
Be honest, do you trust any goverrnent to have your best interests in mind, when it comes to investing your money?
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Access to a once in a Lifetime Learning Opportunity
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Maybe you do or maybe you don't, but are you sure? The old saying 'having skin in the game' is about taking on risk and having goals. Those with few assets don't get many opportunities to invest in their financial education, but the many workers who have been compelled to have a Workplace Pension do have a real-life opportunity, especially younger workers who may not even care about pension planning, but maybe should.
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Try to understand what you already own:
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Those with Workplace Pensions might want to note what Paul Maynard MP, Minister for Pensions, highlighted in November 2023 in a ministerial statement that 'many of the nearly 24 million members of Master Trusts have been defaulted into saving for their retirement, and whether they know it or not, they bear the risk of their investments.'
The 'Five 10ers'
We have created what we call the 'Five 10ers' so those of a similar age group can choose to take an interest in their financial education and learn from others around them.
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​The 'Five 10ers' has those no more than a decade away from State Retirement Age in the oldest group and those more than forty years away are in the youngest group; they are the 'new kids on the block' who may well lack many years' experience but are probably the best equipped to learn more.
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For more information, join us at one of our events, starting here: