The perils of switching – why active asset allocation makes sense but why it needs to be done properly

Shane Oliver discusses active asset allocation and concludes "over the long term, cash and government bonds will generate much lower returns than a diversified mix of assets and switching to cash after a bad patch is not the best strategy for maximising wealth over time. But many do. This leaves investors with two choices: Adopt a long term strategy and effectively rely on the power of compound interest to deliver over time and look through short term cyclical swings. This is okay for true long term investors but maybe not for those with a shorter term focus. Use a rigorous approach to dynamically vary the asset mix (ie what is increasingly referred to as dynamic asset allocation or DAA) in anticipation of cyclical swings." To read a more detailed examination of the perils of switching from Shane Oliver click the (VIEW LINK)