Asset Allocation Strategies
Because asset allocation and risk management are vital to successful investing, examining the best value equity asset allocation strategies should help investors develop a successful investment management system. An asset allocation plan should consider valuation because studies show buying during periods of high valuations produces low returns, and buying during periods of low valuations produces better than average returns. Therefore asset allocation investing should include value investing strategies.
· Tactical Asset Allocation Strategy – Why would an investor want to own the same amount of an asset when it is expensive as they would when it is on sale? Investment asset allocation should be dynamic depending on valuation. When assets such as equities have low valuations increase your asset allocation target; and when valuation is high, decrease your asset allocation target.
· Portfolio Rebalancing is a Power Risk Management Strategy – Portfolio rebalancing forces an investor to buy low and sell high by selling assets that have risen in price and buying assets that have fallen in price.
· Bull Market vs. Bear Market – Hope for a Bear Market! – Instead of being scared out of equities when prices are down, be prepared to take advantage of them by purchasing equities when prices are bargains.
· Use Fundamental Stock Analysis to evaluate the data and ratios in comparison to the universe of equities available. The goal is to find the best companies to invest in given the current price. A good place to start is a value investing strategy using a stock screener.
Implementing an Asset Allocation Strategy
Implementing these Value Asset Allocation Strategies greatly increases the probability of better than average investment returns and decreases portfolio risk. The Arbor Asset Allocation Model Portfolio (AAAMP) has successfully used these strategies to beat the S&P500 over 3, 5, and 10 year periods (see AAAMP Performance).
This article was featured in the Carnival of Value Investing.
| AAAMP Blog by Ken Faulkenberry | |
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Ken Faulkenberry earned an MBA from the University of Southern California (USC) Marshall School of Business with an emphasis in investments. Ken has 25 years of investment experience and is dedicated to helping people with self-directed investment management through the Arbor Investment Planner. His asset allocation strategies have an outstanding performance record. |
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