Our series helps new investors get started. Part five discusses what every investor must come to understand eventually, asset allocation.
New investors seem to have almost an instinctive understanding of diversification.
But they rarely come to the table armed with much grasp and appreciation of asset allocation. There is a difference. Amazingly, experts say your asset allocation choices will usually do more to determine your returns over time than your diversification moves. In other words, getting your stock allocation right will likely be more important than your stock picking - long term. What's more, most professional financial planners advise their clients with an asset allocation framework in mind.