Almost all investment returns can be attributed to strategic asset allocation as opposed to market timing or securities selection.

In fact, according to an oft-quoted investment report in the UK, 91% of investment returns can be attributed to strategic asset allocation, compared to 1.8% for market timing and 4.6% for securities selection.

If this is the case, who should make asset allocation decisions? A professional investment manager or adviser, or the client, who may have little financial knowledge.

For many UK pension funds, the decision is usually made by scheme trustees, with some input from their advisers.

Trustees often work full-time in a day job at their employer and sit on trustee boards for quarterly board meetings, with some time spent preparing and on training.

So there is a strong case to be made for trustees either using an investment sub-committee with co-opted investment experts, or for them to outsource asset allocation decisions.

This is supported by some recent evidence CoreData Research saw from a survey of scheme trustees. This found that trustees spent almost as much time on selecting fund managers, as they did on deciding on their asset allocation.

Perhaps in a bid to justify this time split, the trustees also thought that asset allocation accounted for around 60% of investment returns, compared to just under 40% for fund managers.

These results raise the question of whether trustees are allocating their time efficiently between these two activities.

According to the aforementioned investment research, probably not.

But if trustees think that outsourcing investment decision is a better idea, perhaps they should talk to some investment consultants.

For example, balanced management used to be the rage for pension fund investment in the UK.

Schemes would appoint a large fund manager on the basis they would allocate assets between UK and international equities and government and corporate bonds, with the aim of producing a good return without undue risk.

However, in order to compete with each other, equity allocations by fund managers crept up, leaving schemes badly exposed when the equity bull market ended in 2001.

A similar danger exists with new balanced or diversified growth, which uses a wider range of asset classes, such as commodities, private equity, high yield debt, currencies and real estate.

Another way to solve the asset allocation conundrum could be to use a tactical asset allocation overlay with a traditional split of assets.

This entails the use of derivatives though, which some funds find worrying, and requires the tactical asset allocator to time their market moves.

Individual investors face the same issues as pension funds in asset allocation.

Like pension funds, they often chase returns and allocate to asset classes when they are at a peak and about to dip in performance – recent cases of this being technology, commercial property funds.

Absolute return funds offer investors a steady return, with the fund manager taking asset allocation decisions, but like balanced approaches, they could succumb to a desire to top the performance tables by asset managers and a skew in asset allocation.

What should investors do? Diversification is one approach and multi-asset investing is now seen as a better bet for pension schemes and individuals than a split between, say, bonds and equities.

The other answer is to look more closely at the investor’s risk preferences, their time horizons and investment targets.

This should be the foundation of investment decision-making, but perhaps it is too often glossed over.

Getting the balance right between risk and reward in an investment approach is a difficult skill, but too many investors and their advisers tend to follow the crowd, rather than investing according to their own unique circumstances, preferences and targets.