Shape Your Portfolio Balance For Investment Success

Want to know the one tip that will make you a successful investor? No, this isn’t a sales pitch for some get-rich-quick stock trading program. It’s a bit of good investing advice from Business Week on the factor that most separates excellent investors from average Joes.

The answer, experts say, is asset allocation. Dozens of investment studies show that one basic decision–how you divide funds among such broad asset classes as large- and small-company stocks, domestic and foreign shares, corporate and government bonds, and cash–will determine, on average, 90% of your success as a money manager. The impact of a diversified-asset mix swamps the effects of hot stock picks or great calls on market turns.”

So suppress that inner Warren Buffet you’ve been fighting and tell that guy at the office with the “hot stock tip” that you’re not interested. Instead, concentrate on getting your portfolio mix balanced with the acceptable risk you’re willing to take and how long you’re planning to invest for.— FREE MONEY FINANCE

Time to Reshape Your Portfolio [Business Week]
(Photo: physis3141)

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  1. j-o-h-n says:

    I’ll toss out a recommendation for TIAA-CREF.
    Very low fees, good performance and if you select one of their “Lifecycle 20xx” funds (2010, 2015, … 2040 — pick the year nearest your retirement target) they do all the asset allocation for you — getting less risky as you approach your date.

  2. tcp100 says:

    Um, guys, this article is from 2000.

    While some of its advice is still valid, the stock market has changed a bit in oh, I don’t know, SEVEN YEARS.

    This was right after the peak of the NASDAQ, and called the 700-odd point a buying opportunity.. Not knowing it was to drop another 2000 points from there!

    So many other factors have happened in the stock market since then.. Sarbanes-Oxley, corporate corruption and crackdowns, terrorism, the RE boom and bust..

    My god guys, seriously. A stock article from July 2000, right after the bubble peaked?

  3. MissPinkKate says:

    So suppress that inner Warren Buffet you’ve been fighting and tell that guy at the office with the “hot stock tip” that you’re not interested.

    Don’t you mean bust out your inner Warren Buffet? Buffet’s philsophy is based in being patient and wise, NOT following trends.

  4. alpha says:

    @tcp100:

    hahahaha, oh the quality abounds around here these days.

  5. tcp100 says:

    @MissPinkKate: Oh, come on Kate, details! :)

    No, seriously. Good point. This article is poor on plenty of other fronts, such as this:

    ” Besides, a 20% tax on your capital gain could be dwarfed by the damage that a 25%, 30%, or 40% drop in stocks could wreak.”

    Oh yeah? Try 50%, commencing right after the article was published!

    In the 90’s and early 2000s, “diversification” was considered owning Cisco AND Lucent, not just Cisco. It doesn’t mention lifecycle funds, as @J-O-H-N here did. It dismisses ETFs, of course because it’s so old – the number of ETFs have proliferated since then, and offer a great way to do sector diversification.

    Also, tax laws have changed – the new discounted tax on dividends and capital gains holdings changes benefit those who hold stocks, not flip them as often as this article suggests.

    Morningstar’s portfolio X-Ray service, while great, is no longer free as this mentions. There are plenty of other free sites on the net that can give you an idea of your allocation, but other than what Fidelity has built-in, Morningstar’s is the best that I’ve seen.

    The link to 401kafe in the article doesn’t exist anymore, but Sharebuilder offers some great tools such as the “What if I had invested” tool, amongst some others.

    So, in other words, there is a vast array of fantastic tools out there now, and some new pitfalls and new ways of doing things. An article on that would be great.

    But, I dunno, if you guys don’t have the time maybe you could wrangle up an article on the latest and greatest cell phone technology from 1997. At least it’d be kinda neat and retro.

  6. alpha says:

    @MissPinkKate:

    I had thought the same thing, seeing as how Warren Buffet actually has an amazingly GOOD philosophy to follow, and he’s made what, billions? off of it?

    Warren Buffet is one of the ultimate value, buy-and-hold, style investors. Yes. Let’s run away from THAT philosophy.

    brilliant.

  7. Notsewfast says:

    @tcp100:

    Yeah. I’m sure you’re right… asset allocation no longer applies… the markets have probably fundamentally changed in seven years…


    Do us a favor and let those of us with a clue comment from now on…


    …That aside, allocation is responsible for good consistent gains, especially for the passive investor. I’ve said it before though, how you invest depends on your investment goals. You can be allocated in an aggesive manner to suit your desire for asset growth, or you can be allocated in a conservative manner to preserve assets.

    The key is to be smart, and at very least consult someone with a firm knowledge of the markets. Also, don’t take advice from people who *think* they understand how it all works (tcp100, I’m looking at you…)

  8. RandomHookup says:

    I never trust the investment advice of Warren Buffet. Now, Warren Buffett, on the other hand, is a genius.

  9. tcp100 says:

    @Secret Agent Man: Where did I deny asset allocation? I simply said that the article is OLD, and leaves a LOT out.

    No need to be an asshole about it, but I guess you need to make it personal, because I dare be critical of the Consumerist!

    I’ve been investing for 15 years and have done quite well thank you. However, the tools available for the investor are always changing, and this article is just lacking, and really doesn’t do a good job in delivering its message.

    Please tell me where I erred and gave bad advice, or just admit you’re being a dick because you only enjoy commenters who talk about rainbows and puppies and how wonderful everything is on this site!

  10. tcp100 says:

    @Secret Agent Man: Aaaand now consumerist is clipping comments. Fine, guess you just have to be a cheerleader here!

    As I said in the comment, I never denied asset allocation, nor said anything in contrast to what you said, SAM, so I dont know what your problem is.

    I guess I’ll just let all you guys hold hands and sing.