Speaking to a packed session at the IFP Annual Conference 2014, Prof Thomas said the diversified portfolio approach was simple and offered a balance between risk and reward.

The portfolio concept leans towards lower risk, longer term holdings but also ensures a balanced across all the key asset classes to maintain a balance and avoid over-weighting towards riskier assets which could unbalance a portfolio.

The key was steady long-term growth rather than out-performance in one year, followed by a slump in the next.

Explaining his theory to an audience of Financial Planners and Paraplanners, Prof Thomas, who was speaking in association with Clever Adviser, said the theory was backed by academic research which suggested that a robust, rules-based approach was better for long term performance than a riskier, fund selection approach.

He said this also worked better with a client's approach to risk and helped choose suitable underlying investments.

He said: "Risk Parity involves allocating to assets in a way that assigns weights according to risk so that each asset brings (balance) to the portfolio."

{desktop}{/desktop}{mobile}{/mobile}

The aim was to find a "sweet spot" with a portfolio where clients could see appropriate long term growth with a mix of asset classes and the avoidance of excessive risk. Diversification was important, he said.

Prof Thomas said experts had concluded that it was not possible to predict the future when it came to asset allocation but adopting a rules-based approach based on sound economic theory could pay off long term.