Chapter 19

Choosing Investments

Investment selection

‘Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.’

Warren Buffett

So far, our focus has been on top-down asset allocation. It is probably the most important investment decision you will make, determining the preponderance of your portfolio’s return and risk. However, choosing bottom-up investments makes a big difference.

After setting your asset allocation, the next step is selecting investments under each asset class. Choices are sometimes bewildering. For example, you decide to allocate 20% of your portfolio to UK equities. You can choose individual UK stocks, a passive index tracker or an ETF, an active fund or blend a number of the above. ...

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