Why are asset allocation and diversification important?
Proper asset allocation begins by asking the right questions to determine each investors unique risk tolerance. Numerous independent studies of portfolio performance have determined asset allocation accounts for more than 90% of investment returns. More than 90% of your investment return is determined by your asset allocation alone…stock picking and market timing combined were responsible for less than 6%! Therefore you needn’t worry about what specific equities to buy or when to buy them, but you should focus on owning the correct asset allocation globally diversified. A properly allocated investment portfolio will provide the highest level of return for any given level of risk. An investor needs to be diversified because you can’t reliably and predictably determine…in advance…which asset classes will over or under perform the market. True diversification is not forecasting or adjusting a portfolio because we think we see a trend. True asset class globally diversified portfolios are
