This article will help you learn how to use strategies such as 50/50 - Bond/Stock portfolio, life cycle investing, Merrill Lynch clock, and strategic and tactical allocation. These strategies can help us choose the types of investments, determine your asset composition, and review and rebalance your portfolio.

1. 50/50 - Bond/Stock portfolio

Types of investment: stocks and bonds.

Allocation strategy:

In "The Intelligent Investor," Benjamin Graham advises defensive investors to allocate their money to high-grade bonds and blue chip stocks.

A simple option is to invest 50% of your portfolio in stocks and the remaining 50% in bonds and adjust the mix (say, about 5 percent) in response to changing market conditions. You can adjust the stock's proportion between 25% and 75%, according to market conditions.

Simply put, the higher the percentage of stocks in a portfolio, the higher the risk and volatility, but also the higher the expected return in the long run.

Here are some example portfolio allocation models:

Income portfolio: 100% bonds; 20% stocks + 80% bonds; 30% stocks + 70% bonds.

Balanced portfolio: 40% stocks + 60% bonds; 50% stocks + 50% bonds; 60% stocks + 40% bonds.

Growth portfolio: 70% stocks + 30% bonds; 80% stocks + 20% bonds; 100% stocks.

Note:

To achieve diversification, the 50/50 balanced portfolio is based on the idea that stocks and bonds usually move in opposite directions, like a "seesaw," but it also happens that the two assets can fall at the same time.

This is a fairly simple strategy as it focuses on equities and bonds only. Without considering other assets, investors using this strategy could lose potential opportunities.

2. Life cycle investing

Types of investment: stocks, bonds, cash, and real estate.

Allocation strategy:

People in their prime with a stable job may have different investment preferences from people planning to retire. You may tailor your investing plans according to your stage of life and living circumstances.

Simple version: "100-Age Rule"

The formula commonly used to determine the percentage of stocks an investor should hold = (100 - your present age) * 100%. People are living longer thanks to medical advancements, and the equation can also be adjusted as follows: the percentage of stocks an investor should hold = (110-your current age) * 100%.

A detailed guide to life cycle Investing

Burton G. Malkiel, a Wall Street professional and economist, believes that young investors with a long-term investment horizon may be more willing to take risks than older ones. He suggests asset allocation for different age groups in his book "A Random Walk Down Wall Street."

Source: Burton G. Malkiel's book "Random Walk Down Wall Street"

Note：

Life cycle investing helps investors adjust their investment portfolio in accordance with their age, but Malkiel's suggestion has its drawbacks. For instance, he primarily bases his arguments on the situation in the United States and may not necessarily be applicable to investors in other nations. Financial institutions may update this strategy over time.

Additionally, this plan merely takes into account the individual risk preferences of those at the same age. Their risk appetites can be different as they have different debt levels. So investors still need to customize their investing approaches.

3. Merrill Lynch Clock

According to the Merrill Lynch clock, the economic cycle has four phases: recession, recovery, overheating, and stagflation, and during each phase, there are asset classes that tend to perform very well.

According to Merrill Lynch clock:

Recovery period: The economy grows with low inflation. Potential asset return: Stocks>Bonds>Commodities>Cash;

Overheating period: The economy is on the rise with high inflation. Potential asset return: Commodities>Stocks>Cash/Bonds;

Stagflation period: The economy goes downward with rising inflation. Potential asset return: Cash>Commodities/Bonds>Stocks;

Recession: The economy goes down with falling inflation. Potential asset return: Bonds>Cash>Stocks>Commodities.

Note:

This strategy overemphasizes asset rotation without considering valuation and long-term trends. Additionally, it is challenging to implement this strategy because investors can make mistakes in forecasting different stages of an economic cycle. Market performance can deviate from the Merrill Lynch clock, and can be more elusive. Your trading decisions should be based on market circumstances and your investment plan.

4. Strategic and tactical allocation

Strategic asset allocation: This strategy takes a long-term perspective, usually lasting at least a year or on an annual basis. It is mostly based on an investor's risk tolerance, so it cannot be changed frequently. Many investors generally opt for equities that have the potential to outperform inflation over the long term.

Tactical asset allocation: This strategy focuses on the short term (six to twelve months in most cases). Its main goal is to capture opportunities created by changes in the economic cycle or asset mispricing. Though macroeconomic news, market sentiment indicators, and qualitative assessments can sometimes inform your trading decisions, you shouldn't stray too far from your long-term asset allocation.

Note:

Strategic and tactical allocation requires sound judgment, and investors need to regularly review and rebalance their tactical allocation based on their long-term strategy. Investors may decide their asset composition according to their preferences and other strategies.

In addition to the 50/50 - Bond/Stock portfolio, Merrill Lynch clock, life cycle investing, and strategic and tactical allocation, you can also consider the Yale model and Bridgewater's all-weather strategy. Before applying any method, you should carefully consider its benefits and drawbacks and find one that works for you and your particular circumstances.

Last, pay attention that asset allocation and diversification do not ensure a profit or guarantee against a loss. Investing involves risk and you may lose money regardless of the strategy selected.