“Alice: Would you tell me, please, which way I ought to go from here?
The Cheshire Cat: That depends a good deal on where you want to get to.
Alice: I don’t much care where.
The Cheshire Cat: Then it doesn’t much matter which way you go.
Alice: …So long as I get somewhere.
The Cheshire Cat: Oh, you’re sure to do that, if only you walk long enough.”
— Lewis Carroll, Alice in Wonderland
Not to be too facetious, but very often this is how a conversation between a financial advisor and a client goes. If one doesn’t quite know where one is going, one is likely to take meandering paths and walk for a very very long time. Too often, we put the cart before the horse.
It is widely recognized that the majority of investment returns come from taking long term strategic asset allocation decisions. The how much to allocate to different asset sub-classes question. This simple, boring, yet extremely powerful insight is unfortunately often glossed over in obsessive search for ‘best investment products’ or the next hot fleeting investment theme.
The long term strategic allocation is about figuring out WHERE to go. The roads that get one there then become subsequent choices between a myriad of investment products.
The asset allocation module within activeallocator.com helps set direction, analyzes and then optimizes on what a client already owns. In seconds it dissects a client’s aggregate portfolio, does a risk-return analysis, generates forward looking numbers and metrics and makes recommendations to reallocate asset classes to improve portfolio characteristics. In other cases, it suggests the addition of alternative and illiquid investments (when permissible) to complement and enhance existing holdings.
Only after getting the long term strategic asset allocation right, ought one to worry about portfolio construction and fund manager selection.
Put the horse before the cart with activeallocator.com
Alice would approve. As would the Cheshire cat!