03 these strategies will help you to make a reasonable allocation ratio.

In the last lesson, we talked about the role and four-step approach of asset allocation, and now let's take a look at how to use strategies such as equity-debt balance, life cycle investment, Merrill Lynch clock and strategic and tactical allocation. help us better determine the scope, proportion, and rebalancing of allocation.

1. Stock-debt balance

Scope of investment:Stocks and bonds

Configure the policy:

In "Smart Investor," Benjamin Graham advises defensive investors to allocate money to senior bonds and blue chips. The simplest option is for stocks and bonds to each account for 50 per cent and adjust slightly (say, about 5 per cent) according to changes in market conditions. The proportion of stocks can also be changed between 25% and 75%, and the specific proportion can be adjusted according to market conditions. Today, investors may hear more often about the allocation of "stocks, six debts and four debts".

To put it simply, the larger the proportion of stocks, the greater the long-term return of the whole portfolio, and the greater the risk and volatility.

According to the classification of Pioneer Group:

• Conservative configuration: 100% bonds, or 20% stocks + 80% bonds, or 30% stocks + 70% bonds

• Balanced allocation: 40% stocks + 60% bonds, or 50% stocks + 50% bonds, or 60% stocks + 40% bonds

• Growth allocation: 70% stocks, 30% bonds, or 80% stocks + 20% bonds, or 100% stocks.

Note:

The premise of this strategy is that the returns of stocks and bonds often fluctuate in the opposite direction like a "seesaw", so as to achieve the purpose of risk diversification, but the special situation of both stocks and bonds falling may also occur.

This is a relatively simple strategy, which only takes into account stocks and bonds, but does not take into account other assets, which means that other opportunities will be missed.

2. Life cycle investment method

Scope of investment:Stocks, bonds, cash and real estate

Configure the policy:

The investment preferences of a young man who has worked for several years and is still in his prime should be different from that of an old man who is preparing to retire and looking forward to a comfortable old age. Therefore, when considering investment strategies, you can match your own life cycle and living conditions.

• Simple version: "100-Age Rule"

A common method of calculation is: the proportion of stocks allocated = (100-your current age) * 100%. With the development of medical conditions, people's life expectancy is also increasing, and all this formula can also be the proportion of allocated stocks = (110-your current age) * 100%.

• Detailed version: life cycle Investment Guide

Wall Street professional investor and economist Burton G. Malkiel believes that young investors with long-term investment plans may be able to take more risks than older investors. Here is his view of the configuration of four age groups in his book Walk on Wall Street:

Note:

The life cycle investment method can help investors adjust the investment ratio according to age, but Malkiel's point of view has its limitations, for example, he mainly starts from the situation in the United States and does not necessarily apply to investors in other countries. With the development of the times, different financial institutions may have different applications according to this strategy.

In addition, everyone may need a personalized solution, but this strategy only considers age and does not take into account the different risk preferences of people of the same age. Even if they are peers, one has no debt and the other is heavily in debt, their risk tolerance is likely to be different.

3. Merrill Lynch clock

According to the Merrill Lynch clock, the economic cycle has four stages: recession, recovery, overheating and stagflation, and in different stages, there are asset classes with outstanding performance.

According to Merrill Lynch clock:

• Recovery period: the economy is up and inflation is down. Return on assets in the following order: stocks > bonds > commodities > cash

• Overheating period: the economy goes up, inflation goes up. Return on assets ranked as follows: commodities > stocks > cash / bonds

• Stagflation: the economy goes down and inflation goes up. Return on assets: cash > commodities / bonds > stocks

• Recession: the economy goes down and inflation goes down. The order of return on assets is bonds > cash > stocks > commodities.

Note:

This strategy also does not take into account market valuation, overemphasizes the rotation of assets, and ignores the long-term trend characteristics of assets. Moreover, this strategy is difficult to operate, and the difficulty lies in dividing and predicting the economic cycle. if the judgment is not correct, it is easy to make mistakes in the market rotation. The real economic cycle may be more complex than the theory, and the market performance is not always in line with the Merrill Lynch clock. In practice, we should also analyze the specific situation.

4. Strategy and tactics

Strategic asset allocation:Long-term perspective, usually no less than 12 months, often on an annual basis. Mainly based on the risk tolerance of investors, can not be changed frequently. From this point of view, many investors will choose stocks that can beat inflation in the long run.

Tactical asset allocation:The short-term perspective, usually 6-12 months, mainly explores opportunities from changes in the economic cycle or mispricing of assets. We can refer to macroeconomic data, market sentiment indicators, qualitative judgment, etc., but should not excessively deviate from the long-term asset allocation.

Click on the long-distance running selection or sprint selection in the financial management tab to view the Fortune Elephant Wealth selection team to select funds suitable for long-term and short-term investments.

Note:

Strategy and tactics require high ability to judge long-term and short-term opportunities, and tactical configuration needs to be rebalanced regularly around strategic configuration. Other strategies and investor preferences also need to be combined to further determine the specific asset allocation ratio.

In addition to the above-mentioned equity-debt balance, life cycle investment, Merrill Lynch clock and strategic and tactical allocation, there are Yale model, Bridgewater all-weather strategy and other methods can also be used in asset allocation. No matter which strategy you choose, you should take a comprehensive view of its advantages and disadvantages, and formulate your own asset allocation plan according to your own situation.