At Burton & Fisher we aim to add value to your investment strategy by utilising various processes, including the following:
Strategic Asset Allocation
Strategic asset allocation is a traditional approach to building a portfolio. With strategic asset allocation you determine how much of your money should be invested in broad categories such as equities and bonds (held via funds) and once you have decided upon an allocation you stick with this strategic approach for many years, making only minor changes in response to changing market conditions. The basis of strategic asset allocation lies in something call ‘Modern Portfolio Theory’ which says that portfolios should be optimised to only take the necessary risk to achieve a set return. By using a disciplined strategic approach, it can avoid making emotional short-term decisions based on current market events.
Tactical Asset Allocation
Good tactical asset allocation takes a strategic position as its starting point and only modestly deviates from this in response to changing market conditions. This could include situations where particular asset classes are exposed to specific risks that it is wise to avoid in the short to medium-term. Tactical asset allocation also identifies the styles of investment that are most likely to thrive during different points in the market cycle. For example certain interest rate conditions support owning stocks that are cheaply valued whilst other periods support owning stocks that may be more fully priced but are of a higher quality.
Establishing the right asset allocation is key to making the right investment choices. Maintaining the appropriate asset allocation is equally critical to your long-term success in the market, which is why restoring balance to your portfolio is an ongoing part of the financial planning process.
Over time, the different investments included in your portfolio will generally produce different rates of return, which will cause your portfolio to become unbalanced when it is compared to your original asset allocation. This means your mix of funds will change as time goes by and your portfolio will no longer reflect your investment preferences accurately. When this happens, readjusting your portfolio becomes necessary.