Asset allocation: the importance of liquidity

LIQUIDITY

In the past couple of years most investors have become familiar with the term quantitative easing (QE). In the coming months we will learn the meaning of quantitative tightening (QT) as well.

Neither is a new phenomenon. Central banks have been alternatively injecting liquidity into and squeezing it out of the markets for years. The important thing to recognise is the impact this has on the economy and markets. Liquidity - particularly central bank liquidity injections - drives markets. By monitoring liquidity and money flows and building this analysis into asset allocation strategy, it should be possible to enhance investment performance significantly. Time, not volatility, is the real risk for investors, so choosing the desired investment horizon is their key decision va...