How to approach asset allocation in bullish times
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And if you are someone who thinks asset allocation, well then, dear reader, these are tough times. Now, don’t get me wrong. Asset allocation is not a function of how markets are performing.
It is much larger than that. It's your needs, time horizon, investment plan, how you react to risk et al. And more! If one were to go about discussing all this, it would take a book.
And so, that would be a need met in three months. But there is a pressing need to address the point I raised at the outset: How to approach asset allocation in bullish times. It may perhaps not be wrong to say that the worst mistakes are made in extremely bullish and/or bearish times.
And since we are firmly in the middle of the former, we need to get down to addressing it right now. Let’s start with the easy stuff. What are the most common mistakes you are prone to make (or have already made)? First, and I do not say this lightly, your asset allocation plan, if there ever was one, by now, no longer exists as it was envisaged.
Worse, you willingly junked it. So, you are no longer following a plan. If there's no plan, then what are you doing? This brings us to the second point.
You are chasing the asset that has given the highest return in the past, with the hope that the good times will last forever. Do they ever? Third, you will probably find that you are inadvertently dependent on typically long-duration assets like stocks, to meet your short-term needs. Unfortunately, the outcome of these and other misadventures has probably been very rewarding.
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