Our methodology is rooted in the tenets of modern portfolio theory.
Start with solid foundations
Over the years, many studies have shown that among the most important factors in determining long-term investment performance is “asset allocation”. Asset allocation is essentially the make-up of a portfolio – the combination of different asset classes like equities, bonds, commodities, cash equivalents and others.
Many starting-out investors harbor the notion that successful investing is all about trying to pick the best stocks or successfully timing the markets (buying low and selling high) but these strategies rarely work for anyone but the high-stakes trading operations at institutional level in derivatives or those using quants to power high frequency trading systems.
The message from the various studies is clear – if one’s asset allocation is optimized, they are half way toward a successful investment strategy.
Finish with quality fittings
Most of us are familiar with the old adage advising us “not to put all one’s eggs in one basket”. Well, this is particularly sage advice in the investment world; it really is true but in investment terms, it’s referred to as “diversification”.
Be under no illusions; by diversifying, you’ll likely never generate the returns that can come from an “all on black” hot-stock investment long shot, but what you will have is a strategy that you can rely on. This is because, aside from providing more certainty on your investment returns, it also creates a far more optimal balance between risk and reward.
What this means is that you can add a larger number of higher risk investment classes to a portfolio but, because they can be spread across industry sectors (energy, technology, financial etc) they can reduce the portfolio’s aggregate risk to a much lower level than any of its components but they can still generate strong long-term returns.