tactical trader

As I sat down to write about the importance of asset allocation I was trying to think of how best to convince you that even in the current positive climate you should always be wary of the unexpected. Then, before my eyes, the full horror of events in London on Thursday July 7th began to unfold.

It is not my place here to comment on the events of that awful day or their aftermath, nor am I too concerned about their direct impact on the markets on the day itself. More important is the point that things can change quickly and dramatically.

Who would have thought that the euphoria following the Olympic bid announcement could be so quickly replaced by sheer terror? Admittedly these are extremes but it certainly illustrates how our portfolios need to be as resilient as they can be to world events.

The only way to do this is through effective and regularly monitored asset allocation. The trouble is that so few investors do it properly. They confuse asset allocation with diversification, mainly thanks to the influence of the product sellers.

I am constantly irritated by the number of so called advisers that preach diversification and proceed to put their clients into holdings that have a very high correlation with each other. Taking their advice by having a range of product types in different sectors or countries is not true diversification and you will always find yourself at the mercy of market swings and having to pay absurd levels of fees for the privilege.

If you are looking for regular, sensible and reliable gains from your portfolio than you really must take a close look at how your choices are protecting you and be as sure as you can be that they will not rise and fall together. There is really no point in looking at model portfolios from product providers as they have a vested interest. You are going to have to do some independent research and start to piece together the portfolio that will give you the return you are looking for.

You owe it to yourself to achieve financial security and peace of mind at the lowest possible cost and you cannot do this by relying on somebody else. Recent research has once again clearly demonstrated that very few active investment managers can even outperform index funds and exchange traded funds over five years or more so why are you entrusting your money to them…