An Asset Allocation Model for Maximum Gains
Successful investing begins by conceding that – to a degree – uncertainty will always be your companion.
You can guess what the market is going to do and be right or you can guess and be wrong. Or you can let some self-styled “expert” do the guessing for you. But no one guesses right consistently. So we don’t waste time here.
Instead, we follow a wealth-building investment formula that won Dr. Harold Markowitz the Nobel Prize in finance in 1990. His paper promising “portfolio optimization through means variance analysis” demonstrates how to maximize your profits and minimize your risk by properly asset allocating and rebalancing your portfolio.
Diversity Doesn’t Mean 3 Different Tech Stocks
Sometimes our readers tell us: “Oh, that means diversify. I already do that.” But that’s not what asset allocation is about. A handful of years ago you could have diversified into Microsoft, Intel, Yahoo and Amazon.com and gone right off the cliff.
Asset allocation refers to spreading your investments among different asset classes, not just different securities or market sectors. Doing this has allowed our subscribers to survive, prosper and build wealth during the longest bear market since The Great Depression.
We’ve recommended foreign stocks over the last five years. While the stock market has gone down, these have gone up. We’ve also recommended reader’s put their money into six other asset classes. And over that 5-year time period those recommendations have beaten the S&P’s return.
Because different asset classes are imperfectly correlated – some zig while others zag – our model (as shown below) allows you to boost returns while reducing your portfolio’s volatility.
In layman’s terms, proper asset allocation means you can sleep better – knowing that the daily fluctuations of the market will have little impact on your financial security.
The Foundation of Our Philosophy
In short, asset allocation should be the foundation stone of your whole investment program. It’s critical to building your long-term financial health and it forms the foundation of our philosophy. To learn more about it, pick up a copy of William Bernstein’s excellent book The Intelligent Asset Allocator.Asset Allocation Model for Maximum Gains,