What is the first step in forming a strategic asset allocation?

The first step in forming a strategic asset allocation is to determine the asset allocations that meet the investor's requirements. This foundational step involves understanding the investor's objectives, risk tolerance, time horizon, and any specific constraints (such as legal or liquidity requirements). Recognizing these individual characteristics is crucial because it sets the stage for how the portfolio should be constructed in a way that aligns with the investor's financial goals and needs.

By prioritizing the investor's requirements, you ensure that the asset allocation is not only suitable but also tailored to fit their unique circumstances. This approach helps in creating a more effective investment strategy, as it recognizes the importance of aligning portfolio decisions with the overarching investment philosophy of the client.

Evaluating risk-adjusted performance, eliminating inconsistent allocations, and assessing market trends and conditions are significant steps in the investment process but come after establishing the intended allocations based on the investor's specific needs and objectives.