Principle 4: Maintain discipline
Although the asset allocation decision is one of the cornerstones of any investment strategy, it only works if you stick to it over time and through varying market environments.
Maintain perspective and long-term discipline
Some investors may find themselves making impulsive decisions or, conversely, becoming paralysed by fear, unable to implement an investment strategy or to rebalance a portfolio as needed. Discipline and perspective can help you remain committed to your long-term investment programme through periods of market uncertainty.
Guarding against return chasing: rebalancing
Sticking to a predetermined target also helps to guard against the tendency to chase returns by moving into and out of the best and worst-performing sectors based upon recent past performance. Many investors fall prey to this trap. By rebalancing to your original allocation rather than chasing market performance, you can help to ensure that your portfolio remains aligned with your goals and your appetite for risk.
Initial asset allocation: 60% equity and 40% bonds
Fixed income funds
40%
Equity funds
60%
As it is hypothetical, this example does not represent any particular investment.
Source: Vanguard.
Over time, equity funds rise disproportionately in value.
Fixed income funds
30%
Equity funds
70%
As it is hypothetical, this example does not represent any particular investment.
Source: Vanguard.
Rebalancing from equity funds to bond funds restores the original weighting.
Fixed income funds
40%
Equity funds
60%
As it is hypothetical, this example does not represent any particular investment.
Source: Vanguard.
Other principles
Principle 1: Define your goals
We believe that successful investing begins by setting measurable and attainable investment goals and developing a plan for reaching those goals. Keeping this plan on track means evaluating progress on a regular, ongoing basis.
Principle 2: Keeping a balance
There’s no reward without risk. This familiar lore is as true of investing as it is of anything else in life. You can’t control what happens in the markets, but understanding the historical patterns of equities and bonds can help you handle risk in your own portfolio and select the balance of investments that is right for you.
Principle 3: Control costs
Whatever investments you choose, you increase your chance of outperformance by focusing on those with lower fund costs. That’s because the lower the charges, the more you get to keep of any return the funds achieve. Remember that fund costs are incurred regardless of fund performance.
Important information on investment risks
Investing involves risks. The value of the investments and the resulting returns may rise or fall, and investors may suffer losses on their investments.
Important risk information
Past average returns are no reliable indicator of future investment results. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Important information
Vanguard Investments Switzerland GmbH only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the product(s) described in this document, please contact your financial adviser.
The information contained herein is not to be understood as an offer or solicitation to make an offer to buy or sell securities in any jurisdiction where such an offer or solicitation is unlawful, or to persons to whom such an offer or solicitation may not legally be made, or when the person making the offer or solicitation is not qualified to do so The information does not constitute legal, tax or investment advice. You should therefore not rely on the content when making investment decisions.
The information contained in this document is for educational purposes only and is not a recommendation or solicitation to buy orsell investments.
Published by Vanguard Investments Switzerland GmbH.
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