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Asset Allocation Strategy—In Depth

A deeper analysis of investment trends and topics across asset classes and global markets.

February 9, 2023

Tracie McMillion, CFA, Head of Global Asset Allocation Strategy

Douglas Beath, Global Investment Strategist

Chao Ma, Ph.D., CFA, FRM, Global Portfolio and Investment Strategist

Michael Taylor, CFA, Investment Strategy Analyst

Michelle Wan, CFA, Investment Strategy Analyst

Veronica Willis, Investment Strategy Analyst

Why asset allocation matters in uncertain times

Key takeaways

  • The wide performance swings over the past several years demonstrated a key principle of asset allocation1 — that asset returns and their rankings varied from year to year — but historically, over multiple-year time periods, asset-class performance has tended to smooth out.
  • A diversified allocation is designed in an effort to help reduce volatility over multiple-year time periods, but it may also accomplish this goal over shorter periods of significant return fluctuations.
  • Holding a concentrated portfolio of riskier assets could result in greater portfolio downturns when markets correct. Holding a diversified allocation with the potential to mitigate downside risk could be advantageous during times of market stress in our view. We believe investors should follow an asset allocation strategy through short-term dislocations.
  • We believe that a well-defined strategy may help allow investors to avoid making emotionally driven financial decisions. Some common behavioral biases we acknowledge include: chasing past winners and losers and recency bias, or trading based on recent trends.

1 Asset allocation and diversification do not guarantee investment returns or eliminate risk of loss. They are investment methods used to help manage risk and volatility within a portfolio. There is no guarantee any asset class will perform in a similar manner in the future.