Asset allocation is the only free lunch in the investment market.

-Markowitz

Stock selection, timing, asset allocation, which do you think is the most important among the determinants of long-term investment?

Among the many factors that affect the return on investment, whether it is the pursuit of the concept of the plate or the prediction of the timing of investment, they are actually not influenced or controlled by the investors themselves.The only real controllable factor is asset allocation.。

This is why Markowitz, the Nobel laureate in economics, put forward: "Asset allocation is the only free lunch in the investment market." "

Stock selection and timing are difficult problems for both ordinary investors and professional investors. In fact, people with continuous timing and stock selection ability almost do not exist in the market, because no kind of assets are rising or falling continuously, and the node of buying low and selling high is unlikely to be accurately stepped on every time.

In the 1980s, economists counted the operating income sources of many large pension funds in the United States and concluded that asset allocation contributed 90% of the income in long-term investments. on the other hand, it contributes less than 10% to the market timing and the choice of stocks.

How to understand asset allocation is to allocate funds among different asset classes according to investment demand, and comprehensively manage income, risk, liquidity and so on, so as to achieve the goal of long-term wealth appreciation.

The first step in asset allocation is asset diversification.

We all know that eggs can not be put in the same basket, so based on the demand for the above aspects, the diversification of asset allocation can be measured in terms of the nature of capital, the duration of investment and the degree of risk.

For example, from the point of view of the use of funds, the Standard & Poor's household assets quadrant divides household assets into: "short-term spending", "earmarked funds", "money to generate money", and "capital preservation and appreciation". It can correspond to current flow, regular capital preservation, investment funds and investment varieties with steady income.

From the point of view of investment term and risk matching, the corresponding use period and investment variety of funds can effectively reduce the investment risk.

If you use the funds to be used within a few months to buy stock funds with excellent long-term performance, under the unfortunate circumstances of a short-term sharp fall in the market, floating losses will become real losses; and using a large amount of funds that are not used for a long time to put in investments with lower short-term returns will inevitably be suspected of waste, and the income risk is relatively low.

The key factors of asset allocation are also related.

Effective Asset Management points out that the portfolio strategy is to diversify the portfolio into several unrelated assets to reduce risk and increase returns.

In fact, correlation and diversification are closely related, whether it is the choice of real estate, stocks, funds or gold, futures and other investment varieties, or different strategies refined into the fund portfolio, in theory, the lower the correlation, the better the overall performance of investment returns.

From the correlation of domestic investment assets, for example, Shanghai and Shenzhen 300 and China Securities 500 represent the growth of blue chip and small market respectively, and the correlation is low.

The rebalance of asset allocation is the real "timing".

When our assets are diversified and less relevant, dynamic adjustment is a continuous or cyclical process. To put it simply, assets with different risk-return characteristics are dynamically balanced in a non-time period.

For example, selling some assets that perform well in the short term and investing in relatively robust products to make the proportion of the overall portfolio return to the target value can avoid the risk of portfolio deviation and play the role of locking win or filling positions. Keeping your target allocation ratio for a long time is also a process that is easier known than done.

As for stock selection and timing, it is not easy for ordinary investors to be good at one of them, and it is not easy for ordinary investors to be good at one of them. I believe that fund managers cannot accurately predict the short-term rise and fall of the market, and the weakness of human nature will lead to systematic high-buying and low-selling. Individual stocks and timing performance are incalculable.

Securities selection and market timing are zero-sum games. From the point of view of lengthening the cycle, it is better to use selection techniques that contribute less than 10% of returns to win uncontrollable gains. It is better to do the only controllable thing and stick to it for a long time.