Student Question: Hello, Master. On the topic of asset allocation — there’s a theory that says don’t put all your eggs in one basket. But in practice, very few people actually do this well. Especially when the economy is struggling, the assets we’ve so carefully allocated still shrink. Does this mean asset allocation itself is a false proposition?
Master Chi’s Response: In fact, when the economy is struggling, there are always people who come through unscathed.
Some people — yes, when the economy is bad and assets are shrinking, that’s one reality.
But others move against the tide.
They seize the best opportunities for growth precisely during economic downturns.
The difference between these two groups lies in whether they’ve grasped the true essence of asset allocation.
So what exactly is that essence?
Simply put, asset allocation is about pursuing non-correlation between assets.
The rise and growth of the internet has made the world increasingly smaller. The global division of labor has woven economies tightly together — making the world more diverse, but also far more complex.
Take a smartphone. It requires 500 components, supplied by hundreds of manufacturers scattered across the globe. If one region producing a precision part encounters a problem, the entire production line is affected.
So asset allocation is no longer just about growing wealth — it’s about ensuring that the assets within your portfolio behave differently from one another under any circumstances.
First, from a strategic standpoint: what is the purpose of asset allocation?
For many people, the goal is either to make money or to preserve value. But that shallow framing is precisely why most people fail to execute their plans. When your goal is nothing more than “make money” or “preserve value,” you inevitably oversimplify your allocation. Most people’s plans end up looking basically the same. But in reality, each person’s plan should be different.
For example, if you’re 40 years old and building an allocation in preparation for retirement, you’ll live through several economic cycles before you get there. Liquidity is not your primary concern — you can afford to choose assets with lower liquidity but higher returns.
If you plan to buy a home to live in within the next five years, your timeline is short and urgent. You cannot afford price swings, so your focus should be on protecting your principal — not chasing high returns like a gambler.
If you’ve already retired — especially if you just retired and are in good health — you have more time. But as you age, unexpected expenses will arise, medical costs being one example. You can still choose assets with long-term returns, but their liquidity shouldn’t be too poor.
Getting this right means aligning your strategy with your own situation.
Life puts everyone through tests at every stage.
In school, you face relentless academic demands. Entering the workforce, you face professional competition. With a family comes the need to balance everything at once. And by the time your children grow up and you finally reach retirement, unexpected challenges are still waiting.
So you must plan ahead and adapt as life evolves.
The core logic of asset allocation is to seek non-correlation among the assets in your portfolio.
One portion should be cash management — for everyday living.
About 5% to 10% can go toward protective instruments, such as insurance or bonds.
Value preservation can account for 20% to 30% — for example, real estate, short-term wealth management products, and gold or jewelry, with growth-oriented assets making up around 20%.
The speculative layer can sit at 5% to 10% — collectibles, futures, or equity stakes, for instance.
The core investment layer can be 20% to 30%.
But one of the most common mistakes people make is concentrating all their assets at a single level.
Take real estate — why do some people end up losing heavily on property?
Because their moves exceeded what they could actually bear.
They bought in when the market was at its peak, counting on it to serve as both investment and home. But later, for various reasons, they relocated for work and bought another property. Debt multiplied, loan pressure grew, interest piled up, and things became strained. Meanwhile, the earlier property had dropped in value.
Factor in agent fees, accumulated interest, management fees, and the price decline — the losses can become very large indeed.