A Chicago Tribune article by Kiplinger’s Anne Kate Smith discusses the impact of asset allocation on portfolio performance. It states that research has shown that 88% of a portfolio’s movement is attributable to asset allocation. While the article also says that research indicates that having a diversified portfolio means you may lag the market in bull markets, the true value of proper asset allocation comes during down markets. According to the article, a portfolio invested in large-cap U.S. stocks lost more than half of its value during the 2007-09 Great Recession; a portfolio split 60-40 between stocks and high-grade U.S. bonds lost one-third of its value. Furthermore, the diversified portfolio recouped its losses in 19 months while it took the all-stock portfolio three years to recover.
The article also quotes AAII Journal editor Charles Rotblut, who says that stock investors should own between 10 and 30 stocks to achieve proper diversification and that no individual stock should weigh more than 2.5 times the average holding in your portfolio.
AAII Asset Allocation Resources
AAII believes having a properly diversified portfolio is a key component of investing. This is why we offer or member a wide range of resources to asset them in the asset allocation process:
- AAII Asset Allocation Models: http://www.aaii.com/asset-allocation
- The Advantages of Simple Asset Allocation Strategies: http://www.aaii.com/journal/article/the-advantages-of-simple-allocation-strategies
- Choosing the Right Portfolio Allocation Approach for You: http://www.aaii.com/journal/article/choosing-the-right-portfolio-allocation-approach-for-you
- The Dangers of Getting Out of Stocks During Bear Markets: http://www.aaii.com/journal/article/the-danger-of-getting-out-of-stocks-during-bear-markets