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Diary of a Dumb Investor: asset allocation is only for the rich
How have I been sitting on nearly 23% cash without noticing?
“URGENT: MUST *BUY* NOW!!!”
Yes, you guessed it, I signed up to receive email newsletters from the some of the more excitable investment websites. Whoever writes their hot-headed missives seems to be in a state of permanent agitation, panic-stricken that a reader won’t act fast enough to act on their recommendations. Overly caring perhaps. It must be a stressful job.
I, on the other hand, have been trying to position myself at the other end of the investor scale: the sophisticated, analytical sort who is powered by the clear waters of analysis rather than sweat and adrenaline.
Last week I wrote about how I was exploring the use of ratios to pick shares as a value investor. I was going to follow that up with a look at ‘asset allocation’.
‘Asset allocation, not stock selection, accounts for 90% of your returns, so make it 90% of your investment focus,’ writes Citywire columnist and more knowledgeable financial sort, Mike Deverell.
By that he means making sure you have a spread of assets in your portfolio. These might be bonds, shares, commodities, cash, ETFs, property, funds, investment trusts. Then you need to think about your regional exposure, ticking off Asia, the US, UK, Europe etc.
It’s pretty simple stuff and I’ve had this sort of diversification vaguely in mind since the beginning, aiming to maintain a bit of a spread in my portfolio.
My portfolio: Click to enlarge
But proper asset allocation is like gold shoelaces and strident tax avoidance: only for the rich.
Impoverished sods like me just can’t afford the diversification that better-heeled investors can stretch to, what with their dozens of different holdings.
If you’ve only got 10k, charges on investments prevent you from spreading your money too far. My current basket of seven investments is probably too much considering the charges.
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