In my younger days, I was taught that investing one-third in fixed interest/cash, one-third in property, and one-third in shares would probably do it.
The reality is asset allocation is as individual as fingerprints. If you've put together a diversified portfolio of investments, I would hope you've made a deliberate decision about how your assets are spread.
The first issue to consider is your age and your attitude to risk. I don't buy into the view that because I'm in my 60s I've got to be 100 per cent invested in cash. A 60-something investor like me will have two or more decades of life ahead, which is why I'm still a long-term investor.
I'm highly into Australian equities because the yield is good. A solid chunk of my portfolio is invested in super, which is taxed at 15 per cent. And the franking credits on shares help to wash out any tax paid within my super.
That said, I don't want to have to sell quality assets in a down year. So I hold enough cash for myself and my wife to survive for two years. The rest I pretty much invest in growth assets including overseas investments and infrastructure assets.
What I'm not interested in, is the pain of a permanent capital loss. The chance to earn a big gain just isn't as rewarding for me as the concern of long-term losses.
Unless your attitude to risk has changed, you should aim to rebalance back to your preferred portfolio mix at least twice a year. Yes, it can mean paying switching fees and in some cases, capital gains tax, but rebalancing has the added appeal of enforced discipline.
Paul Clitheroe is chairman of InvestSMART, chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.