"100 million won became 1 billion won in the early 2000s"... Asset Allocation 4/5-Way Strategy proposed by Hong Chun-uk

Contrary to the common perception that asset allocation strategies are merely defensive measures to prevent losses, an analysis has emerged suggesting they can be a means to significantly increase assets over the long term. Through a released video, economist Hong Chun-uk explained the profitability and stability of asset allocation strategies based on historical data.

Possibility of 10x returns when investing 100 million won in the early 2000s

Dr. Hong Chun-uk explained the performance of asset allocation strategies by assuming a scenario where 100 million won was invested at a time when the composite stock index was at 1,000 points in the early 2000s. According to the data in the video, when operating a 4-way investment strategy, assets grew to 820 million won, and when operating a 5-way investment strategy, assets formed more than 1 billion won, achieving what is called a "10-bagger" performance. This is a much higher figure compared to the South Korean stock market, which rose about 7 times during the same period.

Dr. Hong mentioned that to achieve such performance, rebalancing to adjust proportions about once a year is necessary. He explained that the core is to include assets that have the characteristic of trending upward despite different directions of price changes, and to sell some of the risen assets to buy assets that have fallen. He added that to enjoy the effects of such a strategy, patience to observe for at least 3 to 5 years is required.

Changes in correlation between assets and the role of gold and Japanese yen

Regarding the recent phenomenon where stock and bond prices do not move in opposite directions, Dr. Hong analyzed that the correlation between assets can temporarily diverge depending on economic relationships. He explained that when wars or financial shocks occur, the relationship between assets can change, citing cases such as South Korean stocks and exchange rates moving together. However, he viewed that it is difficult for such phenomena to persist for a long time. His logic is that as the economy improves, stock prices rise and interest rates increase, and such economic mechanisms will eventually create opposite movements between assets again.

Gold and the Japanese yen (JPY) were suggested as assets that can respond to volatile markets. Dr. Hong explained that gold has inflation protection and is an asset that can stand out during periods of change in the hegemony of the United States' key currency. Furthermore, citing that yen strength has appeared during every global financial crisis, he mentioned that including the Japanese yen in a portfolio can be an effective strategy to prepare for risks. He also emphasized that the more types of assets are increased (such as the 5-way method), the stronger the defensive power against unexpected events.

Asset allocation strategy applicable to installment investment

MDD (Maximum Drawdown) was presented as an indicator showing the risk management capability of the asset allocation strategy. Based on a portfolio constructed from 2000, the worst loss occurred around 2020, and the loss margin at that time was at a level of about 17–19%. Dr. Hong explained that through asset allocation, the impact in a bear market can be mitigated, comparing it to market conditions where the maximum drawdown of the KOSPI 200 reached 42%.

While many investors worry about whether to engage in asset allocation depending on the size of their seed money, Dr. Hong recommended this strategy even to installment investors. He stated that the method of buying in fixed amounts divided annually is easy to manage, and he confirmed that it is suitable for installment investment as he has personally experienced this strategy for over 18 years. He suggested that the 4-way and 5-way investment methods are relatively simple for individual investors to approach and serve as a starting point to experience the effects of diversified investment.