For some investors, stockpicking is the fun part of investing, but for the long-term wealth builder it is the less glamorous process of asset allocation that is most important. A well-known study in 2000 concluded that up to90 per cent of the variability of portfolio returns is down to the weightings given to equities, bonds, property, cash and alternative investments.
The right asset allocation for you is personal, as investors’ objectives, time frames and risk appetites differ enormously. When taking a holistic view of wealth you also need to consider tax when deciding on a strategy, but for an Isa portfolio we can dismiss these concerns.
One framework for appraising strategic asset allocation is offered by ARC Research. Its Private Client Indices compile data from more than 130,000 professionally-managed portfolios to create a group of indices categorised by risk. ARC takes the individual client return series submitted by the data contributors and places portfolios in the following categories.