The most important investment decision you’ll ever make is almost always overlooked by the average investor, says Simon Mellon of Bonner & Partners Family Office.

Most individual investors are obsessed with finding “rock star” stock picks or mega yielding bonds. They completely ignore the balancing act needed for long term wealth generation. Anyone can pick a winning horse once in a while but can they do it every day? Probably not, and that’s why gambling is a loser’s game.

For some reason, mention asset allocation or portfolio management and most investors’ eyes glaze over. It’s as if you’ve just asked them to understand the latest Goldman Sachs program trade.

At its heart, the process is as simple as a simple “Know Thy Self” combined with a little discipline. Every time a financial adviser takes on a client they are required to know that clients needs and capabilities. If you treat yourself like your own client, you will be a much more successful investor.

All you have to do is consider two key factors honestly you will never go wrong. And these two factors are stress and greed.

Everyone has heard the simple idea that the young have more appetite for risk and therefore should have more of their money in equities, etc. But according to Simon – a highly experienced money manager and global finance insider – this grossly oversimplifies things.

Age isn’t the only key factor. Your own capacity for risk is equally important. I’ll give you a simple example. I have a friend who made a large profit on the sale of a property at the top of the bubble.

In her mid 30s, she followed her friends’ advice and invested in stocks. But she had a zero natural tolerance for any financial risk and barely slept a wink for more than six months. So despite meeting the age (and stable income) requirements for high risk, emotionally and mentally it wasn’t for her.

Remember: “Know Thy Self”. If you’re 22 years old and cut out coupons for the grocery store, you probably aren’t a big risk taker. So play it safe. Similarly, if you’re 83 and still enjoy taking a bet on a long odd, then there is nothing stopping you. The key is to balance your portfolio to match your own needs. But only ever risk what you can afford to lose.

It may sound obvious, but a retiree is more likely to need a larger portion of their portfolio to generate a steady income than a young member of the workforce would.

Everyone would like to turn a $100 grubstake into $1 billion. But when you’re deciding on your asset allocations, Simon says it is important to be realistic about your return expectations.

If you’re too greedy or too “hungry” for a high return, you’re likely to take too much risk chasing it and end up with nothing (or worse: end up in debt to a margined trading account).

If you want your portfolio to be a source of safe additional annual income, you should consider a heavier weighting to investment-grade fixed income. If you’re looking for higher returns, consider a heavier weighting of “growth story” equities and high-yield debt positions.

In other words, once you’ve figured out your own personal “stress factor,” find the balance with your “greed factor” and you have your asset allocation strategy.

Simon says the following three asset allocation models should suit most individual investors (depending, of course, on your stress to greed ratios.) Given the current levels of market volatility, he also recommends increasing the cash allocations by 5% to 10% and lowering the equities allocations accordingly.

• Conservative (low stress, low greed): 40% equities, 35% bonds, 25% cash
• Moderate (average stress, average greed): 60% equities, 25% bonds, 15% cash
• Aggressive (high stress, high greed): 80% equities, 15% bonds, 5% cash