Invest Successfully, Asset Allocation, Understand Your Portfolio

By Harry Sit

The noteworthy articles I read this week come in series.

Quest for Alpha: 10 Rules for Being a Successful Investor at Wise Investing by Larry Swedroe. Excerpts from Larry’s new book Quest for Alpha. More rules in part 2 and part 3 of the series. Of the 30 rules, I like these ones the best:

"Risk and return are not necessarily related; risk and expected return are related. If there were no risk, there would not be higher expected returns."

"Diversification is always working; sometimes you’ll like the results, and sometimes you won’t."

"Keep a diary of your predictions about the market. After a while, you will conclude that you should not act on your ‘insights.’"

Asset allocation: For best investing results, mix well at It’s Only Money by Brent Hunsberger of The Oregonian (daily newspaper in Portland, OR). Brent has a home-court advantage on this topic: he has access to the master asset allocator William Bernstein, who also lives in Oregon. The follow ups in the series are:

Coming up with an asset allocation is one thing. Sticking to it is another. Read Do You Believe In Your Asset Allocation? at My Money Blog by Jonathan. "You should only invest in asset classes that you understand and have strong reasons to hold in both good times and bad." I completely agree. Incidentally Mike Piper said the same thing in How Much Work Is Do-It-Yourself Investing? at Oblivious Investor:

"You need to know why you chose your portfolio in the first place, and you need to know why a period of lousy performance doesn’t necessarily mean you chose poorly."

Have a great weekend!

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Software picked, likely related posts:

Posted on February 11, 2011 under News. Keywords: , .

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Comments

4 Comments on Invest Successfully, Asset Allocation, Understand Your Portfolio

  1. Mike Piper on February 11, 2011
     

    Thanks for the link. :)

    Perhaps not surprisingly, the first two of Larry’s rules that you quoted were my favorites as well.

  2. Phil Bryant, CEO on February 12, 2011
     

    Excellent post. Broad education on Asset Allocation is needed, so keep up the thought leadership, TFB. Most Americans don’t have their asset allocation right in their portfolios – it’s such a pervasive problem that it’s frightening. The Financial Engines annual 401k evaluation reports that 68% of participants have inefficient portfolios with inappropriate risk levels: http://bit.ly/hGk05f The trend hasn’t changed at all since I started reading about it since 2008.

  3. The Prudent Planner on February 16, 2011
     

    For beginners I usually recommend target retirement funds. These are no brainers and usually do just as well or better than the sp500. Yields are generally around 2%. If you want to take on more risk…pick a date beyond your expected retirement age. A lot of people these days are more concerned with what they pick rather than how much they are putting away.

  4. HedgeHoncho on February 18, 2011
     

    Allocation is important, but when you are young it is very tough.

    Stick to mutual funds if you do not have a lot of money to invest.

    One important asset class to have in your portfolio in this economy is gold.

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