Asset allocation in times of market volatility
11th April 2025
In times of market volatility, the importance of disciplined asset allocation becomes increasingly evident. Self-directed investors often gravitate towards equities, attracted by their long-term growth potential. However, without a structured strategy and regular rebalancing, this approach can lead to suboptimal outcomes. Overexposure to equities during downturns, followed by reductions during recoveries, exemplifies the pitfalls of emotionally driven investment decisions.
Conversely, some advisers adhere to conventional allocation models, such as the 60/40 equity-to-bond split, primarily to align with compliance standards rather than to optimize client outcomes. This one-size-fits-all methodology may not suit all investors, particularly those with longer investment horizons who could benefit from a more tailored approach.
Modern Portfolio Theory (MPT), introduced by Harry Markowitz in the 1950s, laid the foundation for diversification strategies aimed at maximizing returns for a given level of risk. While MPT has been instrumental in shaping investment strategies, it has faced criticism for its reliance on assumptions such as normally distributed returns and stable correlations, which may not hold true in today's dynamic markets.
Modern Portfolio Theory (MPT), introduced by Harry Markowitz in the 1950s, laid the foundation for diversification strategies aimed at maximizing returns for a given level of risk. While MPT has been instrumental in shaping investment strategies, it has faced criticism for its reliance on assumptions such as normally distributed returns and stable correlations, which may not hold true in today's dynamic markets.
At Brigantia, we recognize the limitations of traditional models and advocate for a process-driven, long-term approach to asset allocation. Our strategies involve systematic reviews and rebalancing, ensuring that portfolios remain aligned with clients' objectives and risk tolerances. By focusing on evidence-based practices and maintaining emotional detachment from market fluctuations, we aim to provide resilient and adaptable investment solutions.
Furthermore, we are exploring the evolution of asset allocation theories in our forthcoming book, examining whether the changes in market structures necessitate a modernized framework beyond traditional MPT. This initiative underscores our commitment to continuous improvement and thought leadership in the field of wealth management.
Furthermore, we are exploring the evolution of asset allocation theories in our forthcoming book, examining whether the changes in market structures necessitate a modernized framework beyond traditional MPT. This initiative underscores our commitment to continuous improvement and thought leadership in the field of wealth management.
In conclusion, effective asset allocation requires more than adherence to conventional models or reactive strategies. It demands a disciplined, informed, and client-centric approach that adapts to the complexities of modern financial markets.