FT Guide to Saving and Investing for Retirement

Chapter 15

Strategic Asset Allocation

Aligning your portfolio with your investment objectives

‘Have a strategic asset allocation mix that assumes that you don’t know what the future is going to hold.’

Ray Dalio

Asset allocation is probably your most important investment decision. It determines somewhere between 50% and 90% of your portfolio’s return and risk. It is a critical decision, deserving attention and time.

For example, if your investment strategy is capital preservation, you might allocate 20% to equities, 60% to bonds and 20% to cash. This allocation should deliver modest returns with a relative low risk level.

However, if bond yields are low and expected to rise, bonds may suffer capital losses. In a low-yield environment, cash may ...