The tragedy of asset misallocation

Military history is full of episodes that offer lasting lessons that can be applied in other fields.

Take, for example, the unexpected fall of Singapore in the second world war. Known as the “Gibraltar of the East”, Singapore’s defence seemed unbeatable, with massive guns pointing out to sea awaiting a naval attack.

However, the actual assault came through the Malayan jungle, where the guns couldn’t even aim. This strategic blunder resulted from putting resources in the wrong place, and had severe consequences.

Just as Singapore fell due to a mistaken assumption about the threat’s direction, as a modern-day investor you could be being misled about the ultimate threat to your financial security.

Are your guns facing in the wrong direction?

As an investor, you may well have been bombarded by internet gurus telling you about the danger of high fees, with the adviser’s cost coming under the spotlight.

It could have led to you believing that a DIY approach is the optimal strategy. While I do acknowledge that some investors have the ability and discipline to follow this method, I have seen too many examples of investors working in isolation, leading to suboptimal results.

I frequently see clients making poor asset allocation decisions about how much to allocate to equities, bonds, and cash. This complex decision must weigh your time frame, goals, attitude to investing risks, and emotional makeup.

Research shows that more than 90% of a portfolio’s return can be attributed to this single decision. It should be taken seriously, yet I still encounter too many investors who have misunderstood the path to success. When I have helped clients correct their approach, the value has far exceeded my advice fees.

While it’s true that high fees can eat into returns over time, fixating on them can distract you from more crucial aspects that significantly affect your investment success.

It’s time we face the guns in the right direction.

The critical link between asset allocation and investor behaviour

A successful investment strategy starts with knowing how to allocate your assets correctly. Your best ally in this war is a good understanding of market history.

While equities (the ownership of the great companies of the world) has been the primary driver of global markets, too many investors have shied away from this asset class for fear of the frequent but temporary declines they experience.

Many long-term investors who can withstand short-term losses have given up real wealth to avoid the emotional stress of unpredictable markets.

While some investors willingly accept this trade-off and understand what it means, too many don’t realise what they’re giving up or what other options they have. This is the great tragedy of asset misallocation.

There are countless examples of clients who have prospered thanks to a simple change in mindset aided by a caring adviser. This is the real value of advice and one I’m excited about showing to more clients.

The courage to be disciplined

In a time where lifespans are becoming longer, too many investors are at risk of investing without intention. While no single portfolio is perfect for every client, you could really benefit from stress testing your portfolio by asking: “Am I short-changing my future self?”

My role as your lifetime financial partner is to reflect your decisions back to you, helping you make the right trade-offs for your unique circumstances.

Where appropriate, I will push back and encourage you to follow the path of discipline that your future self will thank you for.

Let’s face the guns in the right direction!

Get in touch

If you’d like to talk through your own investing arrangements, then please get in touch.

You can call me on 07769 156 250.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Equity investments do not afford the same capital security as deposit accounts.