Basic Truths About Asset Allocation: A Consensus View Among the Experts
In terms of portfolio management, it is widely agreed that the asset allocation decision is the most important one an investor will make. How you split your investment funds among stocks, bonds, and cash (that is, short-term debt) is more important than your choice of stock mutual funds.
Experts, not surprisingly, do not always agree on the precise portfolio management allocations that different types of investors should adhere to. Yet, in comparing recommendations from published advisory sources, it is clear that there exists a broad consensus about the appropriate mix among stocks, bonds, and cash for most individuals during each stage of their life cycle. Of course, all portfolio management and asset allocation recommendations carry a disclaimer that individual circumstances may dictate a mix that is quite different.
Many individual investors, though, resemble at least roughly the "typical" investor profile. This article discusses some of the general portfolio management guidelines that can be gleaned from these broad recommendations for the "typical" investor. And it notes some of the special circumstances that could dictate an asset mix that differs from the consensus.
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