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"From my vantage point, 'asset allocation' is a relatively new thing," writes Howard Marks, co-chairman of Oaktree, in his recent memo, "Ruminating on Asset Allocation". No one used that phrase when he joined the industry 55 years ago, he continues. Then, structuring portfolios was a pretty simple matter, generally following the classic "60/40" split. Today, investors are presented with so many choices that the term "asset allocation" is very prominent, and there are individuals and whole departments dedicated to doing just that.

Howard Marks goes on to reflect on the evolution of asset allocation by first emphasising the distinction between two fundamental types of assets: ownership (equities, real estate, private equity) and debt (bonds, loans, mortgages). Marks argues that these two asset classes are fundamentally different, not just in degree but in kind, with ownership assets offering higher returns but greater risks and debt providing more predictable returns with lower risk.

Marks stresses that the primary decision in asset allocation is determining one's desired "risk posture"-the balance between preserving capital and seeking growth. This decision shapes how much emphasis should be placed on defensive (preserving capital) versus offensive (maximizing growth) strategies. He argues that a successful investment program should target an appropriate risk level, neither too high nor too low.

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