Some Simple Rules
- Allocate your investments across multiple asset classes to reduce overall portfolio risk.
- Invest broadly within each asset class to eliminate single security risk.
- Keep your costs as low as possible, including taxes.
- Rebalance your portfolio periodically to keep your risk on target with your investment policy.
Asset allocation is a simple concept to understand and yet extremely difficult to implement. You can select asset classes easily, decide on the percentage target for each asset class, choose low-cost mutual funds to represent the asset classes, and perhaps intend to get your portfolio on track. Yet, despite good intentions, many people have great difficulty implementing their strategy fully or maintaining it after the initial allocation. There are too many distractions. You do not have the time, the market does not look right, the talking heads are saying something else, and so on.
Last Updated: 6/25/2018