There is an ongoing debate about the most efficient way of strategic asset allocation in the portfolio. This debate has generated multiple “rules” of investing, namely the “60/40” rule, the “70/30” rule or the “50/50” rule, more commonly known as a neutral portfolio.
Where equities drive long-term returns, and bonds ensure the protection of the portfolios, offsetting against the volatility of the stock market.

The truth of the matter is that the high inflation realm leads to a higher return correlation in the stocks and bonds portfolios, for instance. This makes the “60/40” rule less viable because bonds can’t provide the same security in the portfolios.
Especially if there is a possibility that the interest rates’ hiking cycle will have a long-term trend for many years onwards.

That’s when institutional investors should act as flexibly as possible and change the allocation scheme depending on the policy of a particular central bank. Since the pace of interest rates hiking is uneven across the globe.
In addition, investors and wealth management entities must introduce alternative assets into their portfolios to equip them with proper diversification during these times.

In conclusion, as usual, there is no universal solution when assembling investment portfolios, and the “60/40” rule can be a great starting point for many individual investors.
However, to have the best possible outcome, portfolios have to be actively managed so that they can answer all the challenges the financial market poses constantly in front of investors.

Risk Warning: The information in this article is presented for general information and shall be treated as a marketing communication only.  This analysis is not a recommendation to sell or buy any instrument.  Investing in financial instruments involves a high degree of risk and may not be suitable for all investors. Trading in financial instruments can result in both an increase and a decrease in capital. Please refer to our Risk Disclosure available on our web site for further information.

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3 thoughts on “Rules of Strategic Asset Allocation

  1. We are in a really in-depth discussion about ISEC Wealth Management’s investment strategies. It is interesting to see how strategic asset allocation rules, like the traditional “60/40” rule, evolve in an environment of high inflation. Inflation high increased the return correlation between equities and bonds, calling into question the role of bonds in portfolio protection. This reduces the effectiveness of the “60/40” rule, especially considering the possibility of a cycle where interest rates will be raised for many, many years!! How can ISEC Wealth Management best adapt to these market conditions and optimize clients’ portfolios for maximized returns?

  2. I am the kind of person who is very busy, so I am not able to invest and manage it myself. So when I came across ISEC WM, I was really excited because that aligns with my goals. I never learned how to invest either. That is why I really enjoy reading such articles. I get a better understanding of the markets.

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