Asset Allocation Strategies:
Your Stock Diversification
and Asset Allocation Guide

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Asset Allocation Strategies

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What are Asset Allocation Strategies?
Is it Stock Diversification?

It’s another word for diversification, but diversification on many different levels—not just stock diversification. It starts with number diversification—i.e., not putting all of your eggs in one basket. No matter what the investment, something can go wrong. If you put all of your money in a single investment and it goes bad, you could lose everything. Large losses must be avoided at all costs because they can irreparably devastate your wealth.  Consequently, rather than put your money in a single stock, put it in 20 different stocks. Then, if a stock goes under, it will have much less of an impact on your overall wealth.

A second step in asset allocation is to diversify the types of investments you own, not just the number.  This entails investing not only in different industries, but different geographies, company sizes, styles (e.g., growth vs. value), political statuses (e.g., public vs. private), capital structures (e.g., equity vs. debt), assets (e.g., stock vs. bond vs. cash vs. commodities vs. private equity vs. hedge funds), and even time (e.g., your youth vs. your old age).

First Step of Asset Allocation Strategies: Isolate Your Retirement Money

Asset allocation advice is meant for your retirement money. Money that you will need two years from now for your kid’s college education or to buy your dream home should not be included.  In fact, any money that you will need to spend within the next five to ten years should be excluded from your retirement portfolio. Short-term liquidity needs should be financed out of cash, CDs, or high-quality bonds that you plan to hold until maturity. Otherwise, normal market volatility may cause your savings to be less than you need when it’s time to cash out and spend the money.

Importance of Asset Allocation Strategies
and Stock Diversification

A 2006 study found that more than 100% of investment returns come from asset allocation; active management on average actually loses money.

Of course, if you knew in advance which asset class would perform the best, there would be no need for asset allocation; you would simply put all your money in the asset class primed to perform best. But in real life, nobody knows the best-performing asset class in advance. The ability to market time successfully over a long period of time is impossible.

Why is it beneficial to always be invested in something that is doing well?  After all, one could argue that it is OK to take your lumps in one time period as long as you can make up the losses with huge gains in another period. This line of argument fails to understand the asymmetry between gains and losses—losses are much more damaging than gains are beneficial in terms of building wealth.

A portfolio with a constant annual return of 3% can actually create more wealth over time than a portfolio with an average annual return of 6.25% if the 6.25% portfolio included some years with large losses. Consequently, ensuring that your portfolio possesses an asset class that performs well in every economic scenario makes sense because this asset’s gains will neutralize the losses of other investments, thereby smoothing out investment returns and preventing “the big loss.”

Low Correlations are the Holy Grail of Stock Diversification and Asset Allocation Strategies

The key to finding asset classes that complement each other with zig-zag returns is to know how their returns correlate with each other. Correlation ranges from +1 (moving in lockstep with each other) to -1 (moving in diametrically opposite directions). Mixing assets with a +1 correlation together provides no diversification benefits, whereas adding assets with a -1 correlation together provide perfect diversification. It’s pretty rare to find assets with a negative correlation (in some studies, commodities and stocks have negative correlation), so the best you can reasonably hope for is a low positive correlation under 0.5. 

Asset Allocation Guidelines for Investment Success

In this new special report, Asset Allocation Strategies: Your Stock Diversification and Asset Allocation Guide, we present you with four asset allocation guidelines for investment success that will steer you clear of making any really big mistakes. In addition, we provide actual, concrete model portfolios, both for young investors focused on growing wealth for retirement and for retirees focused on keeping their nest egg a sustainable source of annual income for the rest of their lives.

Here’s a sneak peak at what you’ll find in this FREE special report:

Asset Allocation Guideline #1:
High Stock Allocation When Young, With Gradual Increase in Fixed Income

Asset Allocation Guideline #2:
Overweight Value and Small-Cap Stocks within Your Stock Diversification

Asset Allocation Guideline #3:
Diversify Beyond Stocks and Bonds

Asset Allocation Guideline #4:
Post-Retirement, Understand Product Allocation and Sequence of Returns Risk



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But that’s not all. In addition to these asset allocation guidelines, you will also receive asset allocation information most investors do not know but is absolutely necessary for proper stock diversification and asset allocation.

Asset Allocation Strategies #1:
World Capital Market Percentages

Before you can perform asset allocation, you need to know what asset classes are available and what percentage of the investable universe each makes up. In this absolutely free report, you will find:

Asset Allocation Strategies #2:
Portfolio Optimizer Software for the Serious Investor

Proper asset allocation is mathematically complex and cannot be done longhand on the back of a napkin. Portfolio optimizer software is a must. In this absolutely free report, you will discover where on the Internet you can access free portfolio optimizer software. You can play around with it and see the benefits of diversified asset allocation for yourself. The software is a calculator that lets you input asset classes, correlations, projected annual returns, and estimated volatilities. After the inputs, just click “process” and you’ll get a result that shows how much of each asset you should own to maximize returns at minimum risk.

Asset Allocation Strategies #3:
Correlation Data between Asset Classes

Inputting the correlation between asset classes is absolutely critical for portfolio optimizer software to provide accurate asset allocation results. But it is not easy to find accurate correlation data. In this free report, you will find the correlation data between many different asset classes that is needed to optimize your portfolio.

Asset Allocation Strategies #4:
Basic Stock/Bond Asset Allocation for the Casual Investor

Don’t have time for portfolio optimizer software? Get this free report and find out a basis stock and bond asset allocation that has an extremely high 98% correlation with the returns of an all-stock portfolio, yet is 38% less volatile! In addition, you will find actual historical data demonstrating which combinations of U.S. stocks, foreign stocks, real estate, and commodities have had the best returns and lowest volatilities (i.e., risk) over a more than 30-year period.

Asset Allocation Strategies #5:
Bonds are Important, But Not All Bonds are Created Equal

In your absolutely free copy of Asset Allocation Strategies: Your Stock Diversification and Asset Allocation Guide, you will learn why an all-stock portfolio is a big mistake for almost all investors. Bonds play a critical role in maximizing your chance of a wealthy and comfortable retirement. Yet, not all bonds are appropriate for your portfolio. Find out in this free report exactly which bonds are the ones you need to buy in order to maximize your retirement wealth.

Asset Allocation Strategies #6:
The One Thing You Must Do Each Year to Your Asset Allocation

Even if you are armed with all of the necessary asset allocation data and come up with the perfect asset allocation for your family, if you fail to do one thing each year it could ruin your long-term performance and hurt your retirement. This free report tells you what that one thing is and how to do it.

Asset Allocation Strategies #7:
Model Portfolios for the Serious Investor

This is what you’ve been waiting for!  In your absolutely free report, you will receive more than five separate and complete model portfolios devised by some of the greatest financial minds in the country. These model portfolios are not limited simply to stock diversification and bonds, but include all of the asset classes you need to maximize your success. In addition to the recommended asset classes, specific ETFs and mutual funds are provided that you can easily buy today.

Asset Allocation Strategies #8:
Post-Retirement Planning

Once you reach retirement, asset allocation remains important but is no longer enough. You need to expand your financial planning beyond stock diversification and asset allocation to include product allocation. Products exist—other than stocks—that protect you from a severe market decline and ensure that you never run out of money simply because you live a long life. Most sources of financial advice completely ignore the concept of product allocation, but this free report discusses it in detail and tells you what insurance and other products you need in addition to stock diversification to live the wealthiest, most comfortable, and longest retirement possible!

Don’t Delay! Start Planning Your Wealthy Retirement Today

So what are you waiting for? The financial information and retirement planning advice in this free report could easily cost you hundreds if not thousands of dollars elsewhere. Simply enter your email address in the box provided, and we’ll send you an absolutely free copy of Asset Allocation Strategies: Your Stock Diversification and Asset Allocation Guide. If you sign up today, we will also provide you with a complimentary subscription to the InvestingDaily.com “Stocks to Watch” Daily e-letter!

Wishing you the wealthiest and most comfortable retirement possible,


Jim Fink, CFA
Chief Investment Strategist, Options for Income
Investing Daily 
7600A Leesburg Pike
West Building, Suite 300
Falls Church, VA 22043



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