Getting Strategic with Asset AllocationSheaff Briefs Editor
When it comes to asset allocation, getting strategic means dealing with the big picture and working on ways to achieve financial goals over time, explains Mark Salzinger, wealth manager and a founder of Salzinger Sheaff Brock, LLC.
According to Salzinger, asset allocation should always be guided by the length of time the assets can remain in the market. As Salzinger explains, a one- to two-year time-frame will be marked by volatility. If you, as an investor, are unlikely to need to withdraw money from the portfolio over the next four to five years, he believes you can afford to hold more equities, perhaps using a 50-50 allocation between stocks and bonds. With a 6–10 year time horizon, investors can have 60–80% of their funds in equities, and, with a 15–20 year time horizon, almost all the assets can be in equities, Salzinger advises.
Everybody is accustomed to talking about time horizons when it comes to asset allocation, Salzinger admits. True time horizon, which factors in emotion, is a more reliable allocation guide, he has come to realize over his years in money management. Salzinger believes that an investor must be able to stand firm—yet not all will. In fact, Salzinger points out, most investors don’t do as well as the funds in which they invest! The fear factor creeps into the picture, causing clients to get out of the market at the wrong time—often never getting back in the game, or to chase recent winners that may be due a fall.
“To invest in equities you have to be at least a little hopeful about the future,” Salzinger muses. He himself is more than a little hopeful. “There’s enough innovation, more than enough young people with ideas and work ethic in our world,” he judges. In fact, he concludes, “We have a decent mix of younger and older people, and that’s a good thing.”
Valuations can matter, Salzinger admits in a concession to tactical investment thinking. “If valuations are low, that’s a good thing. Still, valuations don’t dictate whether there’s money to be made over the next ten years.”
Portfolio diversification is important even in a bull market, according to Salzinger—all stocks don’t profit equally in all scenarios (value stocks might very well rise during a high-tech market crash and timing tactics and big bets tend to teach financial advisors humility).
Too many tend to be impressed with complexity in portfolio design, Salzinger finds, chasing esoterics such as credit default spreads, limited partnerships of every ilk, hedge funds, and managed futures. These tend to make portfolios opaque and murky—plus hard to get out of, he finds.
The strategic asset allocation recipe according to Mark Salzinger and Sheaff Brock? Skip the big bets and sudden moves. Stir in hope about the future!