We learned the methods of wealth management from making financial statements. If we want to speed up wealth accumulation, we must increase revenue and reduce expenditure through wealth management. This morning, we will increase the assets we use for investment. Let's use the magic of time to roll the snowball.

Now that there are so many products on the market, how do you choose?

First of all, we need to establish the concept of asset allocation and understand the characteristics of major categories of assets.

1. Adjustment and rebalancing of asset portfolio

The term asset allocation was proposed by Markowitz and several economists in 1990. The core theory is the asset portfolio Choice theory. The risk parity model and mean variance model we often hear are theories developed based on asset allocation. A new type of public fund launched in 2017 - FOF fund, said that the fund of funds takes the route of asset allocation.

Asset allocation is to select a variety of assets and form your own investment portfolio in appropriate proportions so that this portfolio can meet your financial goals.

In fact, the goal of financial management is not to pursue getting rich overnight, but to hope for long-term and stable growth of your wealth, and asset allocation is the only way to achieve this goal.

When we buy stocks or bonds, we think about the situation of a single product, whether it can make money, and how risky it is. But in fact, this method of judging products one by one ignores one important thing. The most important thing is the relationship between various types of assets. It is this relationship that determines whether our investment can ultimately make money. Asset allocation provides a way to consider investment varieties as a whole.

Why? Why investment must adopt asset allocation method.

(1) The significance of asset allocation lies first in diversification.

There is a famous saying, "Eggs don't need...". In the long run, the overall price of most assets will rise. Stocks will increase in value with the profits of listed companies, and bonds will increase in value. Relying on time to generate interest, the house collects rent, even if it is gold, the price will increase with the currency.

Then why do so many people still lose money in investments? The reason is that the price rise we call is not spread evenly every day. Major changes in asset prices are often concentrated in a short period of time, with continuous rises and falls, forming what we call a trend. As long as you can keep going In the market, you will always wait for this concentrated rise to occur, thereby obtaining average positive returns in the long term. If you don't survive in the market long enough, you may miss opportunities.

So, if you want to make money, first make sure that you can always stand in the market. That asset allocation can help you avoid a fatal blow and ensure that you will not be taken out of the market. In fact, you have already won half the battle.

The core role of diversification is that it allows you to stay in the market forever, which is a necessary condition for obtaining long-term investment returns.

Most people who lose money are heavily invested in a certain product. In fact, no matter how good the product is, a black swan event may occur, and then you are likely to be kicked out of the market.

Furthermore, you cannot predict the rise and then buy it before it rises sharply. Therefore, diversified investment can also prevent you from missing historic opportunities. As the saying goes, there is no market in the east. Bright west.

Of course, if you are seeking to get rich overnight and want to make a huge fortune when you seize the rising opportunity, if you are diversified and the position is too low, you will make less, then it may be the asset you bought. If it is not as expected, the risk will be great at this time. Therefore, when investing, you should not think too much about getting rich overnight. Instead, the first thing to consider is the downside risk. Even Buffett and Munger, although they criticize dispersion, Buffett's advice to ordinary investors is to buy the S&P 500 index. Moreover, there is no comparison. After all, Buffett has resources and money. Ah, he bought a company, and with his resources, he was able to turn it into a business.

(2) Asset allocation can change the characteristics of financial products, thereby tailoring a personalized combination for you.

When investing, there are three basic characteristics that are most critical: return, risk and term. But you can't have both of the three. You can't find a product on the market that has high returns, low risks, and a particularly good term. What should I do? Use an asset portfolio to allocate one.

Give an example.

Use the most basic asset allocation strategy: Divide your assets equally into half at the beginning of each year, buying half bonds and half stocks, and adjust it once a year. Assume that the stock is selected from our CSI 300 Total Return Index (including the reinvestment of dividends, which shows the income that can be generated if you buy the CSI 300 Index and hold it). Bond selection ChinaBond New Comprehensive Wealth Index (represents the average return you can get from buying bonds in the market).

Next, let’s look at the situation from 2007 to 2016. There are three situations: only buying stocks, only buying bonds, and buying half of each. The results are as shown in the table. The return rate of buying half of each is much higher than the other two, and the maximum loss in a single year dropped from -65% to -27%.

It’s incredible, isn’t it? This is the power of asset allocation. It changes the financial characteristics of stocks and bonds without making any judgment on the market, forming an investment that has always been better in terms of returns and risks. or assets.

In fact, the secret is that bonds and stocks do not rise and fall at the same time. To be precise, they have opposite characteristics. That is, in years when stocks rise a lot, bonds tend to rise less, and in years when stocks fall sharply, they tend to rise less. Years, bonds tend to rise much more easily.

For example, if stocks have risen sharply this year, the asset balance at the beginning of the year will allocate more funds to bonds, that is, before the profits from high-risk and high-yield stocks are made, they will be put into low-risk bonds. In fact, this is also the magic of time. Because of the stock correction, your money is in bonds, and you can enjoy growth and protect the principal, preventing the snowball from getting smaller. When the stocks come down, you can buy cheaper stock chips through rebalancing. , this is the logic inside.

So, the core method of asset allocation is to allocate assets to assets with low correlation. The benefits of doing this are:

1. Construct a risk and return A combination of features that are both more advantageous at the same time.

2. Match a portfolio with a risk level that meets your personal tolerance.

(3) Asset allocation provides us with a set of evidence-based investment decision-making methods, allowing us to invest more systematically. In fact, this is very important, and it avoids the weaknesses of human nature to a certain extent. . Usually when we buy stocks, we just listen to what others say and don’t know when to sell. That’s because we lack a systematic approach. Then asset allocation is this method. The proportion of positions in each department, when to adjust positions, and investment based on the system will give us stronger psychological support. Through a set of asset allocation methods, you can adjust your portfolio in a planned way. When the market falls, you will guide the risk that the portfolio itself has to bear, and through diversification of asset allocation, you can also reduce the risk. When the net value retracement occurs, you won’t be in a hurry.

Psychological quality is the most important part of investment. A complete trading system can help you enhance your confidence and maintain a peaceful and calm mind.

Two points for good asset allocation

1. The asset portfolio must be in line with the individual’s financial and psychological characteristics. This means that there is no universal asset portfolio in the world. It must vary from person to person.

2. The asset portfolio must be composed of products that can improve the overall portfolio efficiency. Not just any product can be thrown in.

Therefore, asset allocation is to allocate funds to a variety of assets to form a portfolio with different risk and return characteristics from the original financial assets, so that the asset portfolio has a better return-to-risk ratio, and through this The trading system gives us better support for our trading.