What is Asset Allocation?

Asset allocation is how we divide your capital among different asset classes (stocks, bonds, cash, etc.) and currencies to maximize returns while minimizing drawdowns. We stick to the chosen allocation and periodically rebalance when the actual weights shift due to market moves.

The goal isn’t to predict the market — it’s to reach your investment objective with a clear and manageable level of risk.

Why It Matters

  • Fewer surprises
    Different asset classes behave differently — when one drops, another might hold steady or rise. A “everything falls at once” moment is rare and usually short-lived.
 (The last such instance was in 2022, when almost all assets fell — except the US dollar. But by 2023, markets had largely recovered.)
  • Smoother return curve
    Rebalancing helps reduce deep drawdowns and makes your investment journey easier to stick with.
    Most investors don’t quit because of low returns — they quit when it feels too painful during a major or prolonged loss.
    A smoother curve helps you stay in the game.
  • Discipline over emotion
    Clear rules replace knee-jerk reactions like “Everything’s up/down — I need to do something right now!”

What Are the Main Asset Classes?

  • Equities – higher long-term growth, but volatile
  • Bonds / Cash – more stable, lower returns
  • Real assets e.g., gold, commodities, or real estate via funds - offer diversification
  • Currencies – your base spending currency plus a smart allocation to others to reduce FX risk

We usually use ETFs (Exchange-Traded Funds) to build the portfolio - they’re liquid, low-cost, transparent, and accessible.

Core Recipe: Strategic Asset Allocation

  • Strategic Asset Allocation means setting long-term target weights across asset classes. This allocation only changes when your life situation changes — not because of market noise.

How We Build Your Portfolio

We look at three things:

  1. Timeframe & cash buffer
    When will you need the money? Do you have 6-12 months of expenses as a safety net?
  2. Required return
    How much do you realistically need to earn to reach your goal?
  3. Risk psychology
    How much drawdown can you endure without abandoning the plan?

Rebalancing - Staying on Course

Once to four times per year (and/or when allocations drift significantly), we sell what’s gone up and buy what’s lagging to return to target weights.
We do this carefully — using new contributions/withdrawals, factoring in taxes and fees, and avoiding overtrading.

Asset Location - Which Account Holds What?

The strategy stays the same, but we place assets in the right accounts to optimize for taxes and costs.

For example:

  • Bonds in tax-advantaged accounts
  • Long-term growth equities in accounts with capital gains tax benefits

Important: What Asset Allocation Doesn’t Do

  • It doesn’t guarantee returns or eliminate drawdowns
  • It’s not a “set-and-forget” approach — the plan must evolve if your life does
  • It won’t work without discipline — even the best strategy fails if you abandon it at the worst moment

Mini Pre-Investment Checklist

  • Your target goal and amount (in today’s money)
  • Timeframe and size of your financial cushion
  • Maximum drawdown you can tolerate without quitting
  • Preferred currencies and tax jurisdiction
  • Rules: how often we review, whether tactical moves are allowed, thresholds, etc.

How This Works with Me

  1. Intro & risk questionnaire – we identify your goals, timeframe, and experienc
  2. Investment Plan – a short rules-based document: target allocations, currencies, rebalancing, limits
  3. ETF Portfolio – simple, transparent, and cost-efficient
  4. Launch & Rebalancing – based on calendar or deviation thresholds, considering taxes and fees
  5. Ongoing Updates – we adjust only when your life changes, not when the headlines do

Quick Glossary

  • Stocks (Equities) – ownership in companies; higher growth, higher volatility
  • Bonds – debt instruments; lower volatility, lower returns
  • ETF (Exchange-Traded Fund) – a fund that holds a basket of assets, traded like a stock; cheap and convenient
    (You can find ETFs for almost anything: US tech stocks, silver, uranium, gold miners, African equities, etc.)
  • Rebalancing – returning to your target allocation by selling part of the outperformers and buying underperformer
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