Building a Calm Asset Allocation: An Investment Philosophy Where Each Asset Class Does Its Job

The core problem of investor anxiety lies in

. This expectation violates the operating rules of the market and is the root of investment pain.

Taking the U.S. market in 2025 as an example, although the S&P 500 index rose 14.70% for the whole year and Nasdaq rose 17.58%, it experienced significant volatility during the period [0].

: Capture long-term economic growth and corporate profit growth, providing the portfolio’s main source of returns

:

• High volatility (annualized volatility usually 15-25%)
• Long-term return advantage (historical annualized return about 8-10%)
• Highly sensitive to economic cycles

: The S&P 500 volatility reached 1.18%, but achieved a considerable return of 14.70% for the whole year [0]. : creating long-term value amid volatility.

: Accept that stocks may underperform in some years or even consecutive years. This volatility is the “ticket price” for obtaining long-term premiums.

: Provide stable cash flow, reduce overall portfolio volatility, and offer defense when the stock market is under pressure

:

• Significantly lower volatility than stocks (usually 3-8%)
• Relatively stable and predictable returns
• Usually negatively or lowly correlated with stocks

: When stocks fall, the bond portion can often provide a buffer, allowing investors to avoid panic selling.

: Hedge against inflation risks and provide protection in specific macro environments

:

• Low correlation with stocks and bonds
• Highly sensitive to inflation
• Average long-term returns, but outstanding phased performance

: Commodities should not be the permanent main force of the portfolio, but should be allocated phased according to the macro environment. For example, during high inflation periods, commodities such as energy and precious metals can provide effective protection.

: The energy sector performed best (+0.47% in a single day), reflecting the value of commodities in specific environments [0].

: Provide liquidity, respond to unexpected expenses, and provide “bottom-fishing” ammunition when the market falls extremely

:

• Lowest returns (slightly higher than inflation)
• Zero volatility
• Provide psychological security

: It allows you not to be forced to sell stocks when the market panics, but instead have the ability to add positions at low levels. The value of this option far exceeds the low return cost of cash.

: Do not require bonds to provide stock-like returns, do not require stocks to have bond-like stability

:

• Stock portion (50-70%): Accept its volatility and focus on long-term growth
• Bond portion (20-40%): Pursue stability rather than high returns, reduce portfolio volatility
• Commodity portion (0-10%): Flexibly adjust according to macro environment
• Cash portion (5-15%): Maintain liquidity and reserve strategic funds

: Adjustments to asset allocation should be based on time span (changes in age, financial goals) rather than short-term market fluctuations

:

• 30-year-old investor: Can bear a higher stock ratio (70-80%) because there is time to digest volatility
• 50-year-old investor: Should increase bonds and cash (50-50 or 60-40) to reduce risk
• Retired investor: Ensure stable cash flow (bonds + high proportion of cash)

: Avoid emotional decisions through regularized operations

:

• Time Rebalancing
  : Check once every quarter or half a year, adjust when deviating from the target allocation by more than 5%
• Threshold Rebalancing
  : Trigger rebalancing when an asset class deviates from the target allocation by more than ±10%
• Fund Inflow Rebalancing
  : Allocate new funds to underweight asset classes

: Economic downturn, risk assets under pressure, rising demand for safe-haven assets

:

• Bond portion (especially treasury bonds) plays a stabilizing role
• Cash provides security and ability to应对 unexpected situations
• Do not rush to reduce positions in the stock portion
  (unless fundamentals deteriorate seriously), because crises often provide the best buying opportunities

: Pre-set a “crisis response plan” and know in advance how much the decline will trigger an increase in positions, rather than making temporary decisions when panicking

: Economic improvement, corporate profit growth, rising risk appetite

:

• The stock portion naturally plays a growth role
• Regularly rebalance, sell part of the stocks that have risen too much, and buy relatively lagging bonds
• Do not overweight stocks because they are performing well, nor reduce bonds because they are performing平平

: Pre-set a “profit-taking plan”, such as actively reducing positions when a single stock or a single sector accounts for more than 20% of the portfolio

: Rising prices, rising interest rates, failure of traditional stock-bond correlation

:

• Increase commodity allocation (energy, precious metals, inflation-protected bonds)
• Focus on high-quality enterprises with pricing power in stocks
• Shorten bond duration to reduce interest rate risk

: Identify inflation signals in advance and adjust allocation before inflation gets out of control

: Weak economy, extremely low interest rates, limited returns for all assets

:

• Lower overall return expectations
• Increase stock allocation because bond returns are too low
• Consider alternative assets (REITs, high-yield bonds)
• Cash ratio can be appropriately reduced

: Accept the low-yield environment and avoid excessive risk-taking in pursuit of returns

: Long-term wealth appreciation, can bear moderate volatility

:

• Stocks 65% (including U.S. stocks 40%, international stocks 15%, emerging markets 10%)
• Bonds 25% (mainly investment-grade bonds, a small amount of high-yield bonds)
• Commodities 5% (gold + crude oil)
• Cash 5% (emergency funds + opportunity reserves)

: Rebalance once every six months, use cash to increase positions when the stock portion falls by more than 20%

: Wealth preservation and appreciation, prepare for retirement, reduce volatility

:

• Stocks 50% (large-cap stocks 30%, small and medium-cap stocks 15%, international stocks 5%)
• Bonds 35% (treasury bonds 20%, corporate bonds 10%, TIPS 5%)
• Commodities 5%
• Cash 10%

: Start the defense mode (increase bonds) when stocks fall by 15%, use cash to increase positions in high-quality stocks when they fall by 25%

: Stable cash flow, capital preservation, ensure not to lag behind inflation

:

• Stocks 30% (mainly high-dividend stocks)
• Bonds 50% (treasury bonds + investment-grade corporate bonds, laddered duration)
• Commodities 5% (gold as insurance)
• Cash 15% (2-3 years of living expenses)

: Bond maturity income + dividends cover daily expenses, the stock portion is used to fight inflation, and cash ensures no forced selling of assets in the short term

: All assets must make money at all times
: Each asset in the portfolio doing its job is good performance

• Stable bonds when stocks fall = good performance (reduce portfolio volatility)
• Growing stocks when bond returns are low = good performance (provide long-term returns)
• Cash with the lowest returns but providing security = good performance (psychological value)
• Outstanding performance of commodities during inflation = good performance (risk hedge)

(no operation needed):

• Stock portfolio volatility ±15% (within normal range)
• Single-quarter returns lower than expected
• Phased underperformance of a certain asset class (within 6 months)

(review fundamentals):

• Stock portfolio significantly underperforms the benchmark for 2-3 consecutive years
• Credit risk signals appear in bonds
• Structural changes in the macro environment (such as long-term high inflation)
• Significant changes in personal financial status

: “My stocks fell 20% this year, is the allocation wrong?”

:

• The responsibility of stocks is long-term growth, and short-term volatility is the cost of obtaining returns
• Check: Is it deviating from the target allocation? If yes, buy low and sell high through rebalancing
• If fundamentals have not deteriorated, a 20% drop is instead an opportunity to increase positions

: “Bond returns are so low, why allocate 30%?”

:

• The responsibility of bonds is not high returns, but to reduce volatility and provide security
• Check: Did bonds play a buffer role when the stock market fell?
• If the portfolio volatility makes you unable to sleep at night, it means the bond allocation may not be enough

: “Is cash too conservative?”

:

• The responsibility of cash is liquidity management and strategic options
• Check: Do you have 3-6 months of emergency funds? Do you have “bottom-fishing” funds?
• During extreme market declines, cash allows you not to be forced to sell stocks

Based on current market data:

:

• S&P 500 rose 14.70% for the whole year, volatility 1.18% [0]
• Sector performance分化明显, energy sector led the rise [0]
• Technology sector rose but was relatively lagging

:

1. Stock Portion
   : After annual growth, consider适度 profit-taking and reduce stock allocation to the lower limit of the target range through rebalancing

2. Bond Portion
   : The value of bond allocation rises in the current economic environment, and the allocation can be moderately increased to reduce portfolio risk

3. Commodity Portion
   : The energy sector performed well, and the existing commodity allocation can be maintained as an inflation hedge

4. Cash Portion
   : Maintain sufficient cash reserves to reserve space for possible market volatility in 2026

• [ ] Clarify your risk tolerance and investment time span
• [ ] Set target asset allocation ratio (based on age and financial status)
• [ ] Check whether the current portfolio meets the target allocation, and rebalance if necessary

• [ ] Check the allocation once a year and adjust according to age and financial status
• [ ] Evaluate whether each asset class has fulfilled its responsibilities
• [ ] Update the “crisis response plan” and “profit-taking rules”

• [ ] Accept that every asset class has periods of poor performance
• [ ] Focus on the overall performance of the portfolio rather than individual asset classes
• [ ] Refer to the pre-set plan when the market fluctuates, rather than emotional reactions

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: True calm does not come from predicting the market, but from establishing an allocation system that allows various assets to perform their duties. In this system, you do not need every asset to perform well, but only need them to play their roles when needed. Stocks are responsible for long-term growth, bonds for stability, commodities for hedging specific risks, and cash for providing options—this is the way of asset allocation that allows investors to remain calm in any market environment.

[0] Jinling API Data (2025 Market Index and Sector Performance Data)
[1] Seeking Alpha - “Model Allocation 2025: Wrap-Up & Updates For 2026” (https://seekingalpha.com/article/4856096-model-allocation-2025-wrap-up-and-updates-for-2026)