strategic asset allocation

Think of a mother preparing a big pot of jollof rice for a party. She does not throw in whatever she finds that day. She has a plan, a certain amount of rice, a certain amount of tomato, pepper and oil, decided beforehand because she knows exactly how many mouths she is feeding and what the occasion demands. Strategic asset allocation works the same way with your money. It is the fixed plan you set for how much goes into stocks, how much into bonds, and how much into cash or property, based on your goals, your age and how much wander your stomach can take when the market misbehaves.

Once you set that mix, you do not change it every time news breaks or your neighbour tells you Zenith shares are about to fly. Say you decide 70% stocks and 30% bonds is right for you because you are 30 years old with decades ahead before retirement. You hold that mix through good years and bad years, only adjusting occasionally to bring it back to plan when one part grows faster than the other.

A Nigerian example makes this clear. Someone building a retirement fund through a pension fund administrator might have their contributions split by law into a mix of government bonds, treasury bills and equities. That split does not change because oil prices dropped last week. It stays fixed, deliberately, because the plan was built for the long path, not the weather of any single month.

In the United Kingdom, someone with a stocks and shares ISA might set a strategic allocation of 80% global equities and 20% bonds at age 25, then slowly shift that ratio towards more bonds as retirement nears. A Nigerian in London sending money home might keep a similar disciplined split between their UK investments and whatever they are building back home, rather than chasing whichever market shouted loudest that week.