The Not So Easy Job; Asset Allocation
Understanding asset allocation, diversification, and risk can sometimes be daunting. And most would prefer working with this about as much as doing their income taxes. A closer look shows a significant portion of investment return is determined by the asset allocation of the portfolio. Academic work has shown that the majority of portfolio return is provided by asset allocation and very little is provided by the selection of the securities (stocks, bonds, funds, etc.) or the use of market timing. So not paying attention here can be costly!
To complicate things, not everyone has access to the same securities, has the same ideas about prudent investing (investment philosophy) or the same investment objectives (investment policy). If you’re a DIY guy then it might pay to get some objective advice to support your own decision making process. For the rest, look first at the easy aspects of picking your advisor, then look and learn about their own investment philosophies.
Many times an advisor is well liked and capable, but his investing philosophy or his investment resources are not truly appropriate for you!
A prudent investor spends time getting to know and understand their advisor. You don’t need to be an expert to evaluate advisors, but you also can’t put your head in the sand expect a favorable outcome.
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