Asset Allocation

Did you know that asset allocation is the most important thing when managing a portfolio?

It is however, not what makes headlines. Often you can pour through the financial press and read about what companies are good buys, what the hottest mutual funds are, or what stocks are good for a bad economy.

What does not make the headlines very often on CNBC or Bloomberg is asset allocation- which is a professional management system that was developed by a few University of Chicago professors. They studied years and years of market data and found out the following:

Your mix between all the asset classes is what drives 92% of your portfolios performance...yes, 92%!

What drives 4% is picking Stock A over Stock B, and then just like any other study there was a 4% variance.

The mix of asset classes ( meaning what percent you should have in Large Cap vs. Mid or Small Cap) is dependent on three things:

1) Your risk tolerance- are you aggressive, moderate,etc.

2) Your tax status

3) Your time frame

So, your asset allocation is going to be different then your neighbors, friends, co- workers etc. bc these 3 factors differ for everyone.

What is your asset allocation, are you using this in your portfolios?