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Introduction | What is the Asset Allocation Process? | Finding the Right Ingredients | No Single Investment Has It All | Correlation | Ideal Asset Allocation | Optimizers

Asset Allocation

Introduction to Asset Allocation

Choosing the right mixture of different asset types -- stocks, bonds and cash investments -- is called asset allocation, and it is an absolutely critical part of investing. A wise asset allocation strategy will make the difference between a legitimate investment plan and just a bunch of investments.

Researchers have surveyed the retirement planning industry to find out what factors most influence the investment performance of pension funds. Overwhelmingly, the leading factor is strategic asset allocation (the mix of assets). It is responsible for 91.5% of pension funds' performance. Other factors such as market timing (trying to buy low and sell high) and choosing individual securities account for only 8.5% of pension funds' results.

In other words, buying a wide range of stocks and bonds as a long-term investment is more important than trying to cash in on momentary market mania. Market events make great news, but usually they don't make much difference over the long term. Some people do get rich by playing the market -- but those people are almost always professional investors and their success stories are few and far between.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.
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