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The allocation
of your investment dollars has more impact on your overall investment success
than anything else. The asset allocation decision is the single most important
factor in determining both performance (return) and risk (standard deviation)
of an investment portfolio.
According to a key
study of pension fund performance*, the overwhelming determinant of the
success or failure of an investment strategy is how the assets were divided
among the various asset classes (stocks, bonds, cash equivalents). Which
securities or mutual funds were bought or sold, and when the investments
were made, had considerably less impact, as the chart below shows.
*Source: Brinson,
B. Gary, Brian D. Singer and Gil L. Beebower; Financial Analysts Journal;
May-June 1991.
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