5

January

2010

Model portfolio review January 2010

Published by Marc Westlake under Portfolios |

In early 2009, millions of would-be investors were reluctant to move into equities because the Stock market was falling too fast. Now many are wary because the market is rising too fast.

While no-one yet has come up with a consistently successful strategy for timing the market to perfection, there are some things that everyone can do to help ease the anxiety they feel about investing.

One is to realise that it does not have to be a choice between being 100 per cent in the market and 100 per cent outside. Ideally, an investor should stick to their strategic asset allocation — be it 70/30 or 60/40 or 50/50 equity/bonds.

Another is that this strategic asset allocation can be combined with periodic, disciplined rebalancing, in which the investor shifts assets from well performing asset classes to those less favoured. This is a good way of controlling risk without necessarily trying to time the market.

A third option is that there is nothing wrong with investors taking into account the returns they have already enjoyed and adjusting their asset allocations if they are on course to meet their goals. So, for example, for some investors it might make perfect sense to lock in returns after a good period and put the money into short-term fixed interest if that meets their needs.

So, in summary, it's always difficult to choose exactly the right time to get back into the market. The good news is that there are other options than just staying out of the market altogether and plunging back in.

These include maintaining a long-term strategic asset allocation in the first place, periodically rebalancing, taking money off the table if your retirement goals are on track.

The underlying philosophy in all these options is that individual investors are making decisions based on their own needs and risk appetites, not according to someone else's opinion as to what the market does next. Uncertainty will always be an integral part of investment (and life). But there are many things we can control.

Please click the image below to review the performance of our model portfolios for the 10 years January 1999 to December 2009.


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