Making Allocations Count

making allocations count - ithought - shyam sekhar

The choices investors make are mostly voluntary. Investors always take easy choices and pick options that look better from a recency point of view. When an investor has money and wants to make a choice, he is always more inclined to pick up what has worked well in the immediate past. When one asset class works well for a long time, the investor tends to choose that asset class. Over the past few years, investors have relied more on equity than on other asset classes. This approach is always froth with risks.

An asset class falling out of favour is not unusual and happens very quickly. Investors don’t get time to correct their exposure levels to an asset class when the asset class starts falling out of favour. You cannot suddenly exit an asset class when it is on a sharp decline, nor can you buy another class when the window of opportunity has already passed. Being in the right asset classes, happen only when you make the effort to participate in them on time.

Investment opportunities don’t wait for investors to make up their minds. Investors also wait too long to make up their minds. Everybody is trying to time ‘decision making’ to perfection. This approach of trying too hard itself leads to grave imperfections. But there is a way to overcome this issue.

The answer to this problem lies in always pursuing balanced asset allocation. By building allocation to each asset class diligently over time an investor negates the risk of timing failures. While doing so an investor also normalizes his approach and de-risks himself from sharp movement in interest rates, global capital flows, currency risk, commodity prices and asset revaluations.

Seeking such a balance is interpreted as a lack of risk-taking skills. Nothing can be farther from the truth. Those who believe in timing often end up failing to complete investment actions. They wait out for too long till it is too late. Every phase of global volatility presents investors with the opportunity to correct their mistakes, align their investment process, and execute sensibly. Investors who see the merit in creating the right asset allocation will always be the winner in the most trying circumstances.

The opportunity window to do whatever it takes is now open to investors who are inclined to act. It is never too late to set your investing right.