SOME investors panic during hard economic times, especially pre-retirees and retirees. But it’s important to stay the course once asset allocations are the right mix and long-term goals remain the same.

What is asset allocation? This term involves allotting money to different types of investments or assets, such as determining how much funds should be invested in stocks, bonds, treasury bills, real estate, etc.

Asset allocation is based on the principle of balancing risk vs returns. It’s an investment strategy aimed at assisting individual investors to reach their financial goals. Each investor’s strategy is unique to them as it depends on their circumstances, age, risk tolerance, the amount of money available for investing, and financial goals. Investment strategies are reassessed whenever a change occurs in the investor’s situation.

Investment strategies are necessary to meet both the short-term and long-term goals of the investor. The disciplined investor knows that having the right mix of investments will help to maximise returns and minimise risks whenever there are changes in the financial markets or economy that will impact asset performance. A disciplined investor anticipates that some investments will underperform during times when others are doing well.

But asset allocation helps the disciplined investor to plan for retirement, meet education goals, home ownership, and other financial needs. The application of asset allocation in pension fund management is important in achieving the best returns for retirees. With regards to stocks and bonds, the disciplined investor is mindful that stocks are high risk but has the highest potential return on investment than bonds. Whereas bonds are needed for stable returns, research shows that bonds do not outperform inflation over the long term. In Jamaica, between 2002 and 2022 the inflation rate averaged 8.53 per cent. The disciplined investor knows that stocks are the best investment option to beat inflation when investing long term. Investment company BPM Financial Limited has a Local Equity Portfolio account which has averaged 19.86 per cent per year over 20 years (2002 – 2021). It’s the disciplined investor who achieves success by remaining invested during times of financial lows and highs, utilising the buy and hold principle.

The buy and hold principle refers to investing in security, such as stocks, pooled funds or exchange traded funds (ETF) and keeping them over a long period, even during times of market instability. The disciplined investor is not too eager to sell his shares during times of high returns but understands the need to reinvest dividends and benefit from greater yield on investments in the long term. Neither is this investor quick to sell shares when stocks are underperforming as selling the stocks during a market decline would realise a permanent loss. A disciplined investor knows that the losses in the stock market are temporary and behaviour determines permanent loss. An investor who appreciates the discipline of waiting will reap the rewards. The disciplined investor doesn’t make decisions based on emotions. The pitfall of relying on emotions to make financial decisions can be quite costly in the long run.During periods of financial difficulty, it is tempting to yield to the fear of loss, anxiety, and stress. But the investor who has the discipline of investing in the good and bad times avoids making poor decisions.

French international investor Jean-Marie Eveillard said, “If I buy a stock for $50 and after four years it is still at $50 and then in the fifth year it doubles to $100, I don’t say I wasted my time for four years, I say I doubled my money in five years, which is compounding at 15 per cent per year; that’s good enough for me.”

A disciplined investor is patient and, therefore, benefits from the compounding effect of growing capital exponentially over time. Being disciplined in any sphere of life is not easy and can be painful. When it comes to investment discipline, the investor has to decide between two pains. As American entrepreneur Jim Rohn puts it: “We all must suffer from one of two pains: the pain of discipline or the pain of regret.” The disciplined investor learns that the pain of discipline does not last, but the pain of regrets is enduring.