“The fault, dear Brutus, is not in our stars, but in ourselves…” — Cassius, speaking in Shakespeare’s Julius Caesar

When our portfolios produce a disappointing performance, we often blame external factors rather than fault our own decisions.

Despite the compelling case to diversify, many investors hold portfolios with assets concentrated in relatively few holdings. This common failure has its roots in lack of knowledge and just plain laziness.

I’m here to shake you out of your complacency, because in this perilous investment era, it’s especially important to CYA (cover your assets).

Eggs in one basket: a recipe for disaster…

Your investment strategy should start with the right asset allocation, tailored to your financial goals. When creating a diversified portfolio, you must forge an asset allocation plan that closely mirrors your individual investment goals, the way a thumbprint reflects identity.

An asset allocation policy entails dividing a portfolio’s investments among different asset classes. The most common classes are U.S. stocks, international stocks, bonds, cash and cash equivalents, and real estate.

Your asset allocation plan should govern your choices when purchasing stocks, bonds, real estate and other investments. It also should be designed to provide an easy and transparent way for you to determine how your investments are performing.

Of course, in a bull market, your allocation should emphasize stocks. In a bear market, you should lighten up on stocks in favor of bonds and cash. And a transitional market that’s “in between” should strike a balance.

Your Allocation Checklist

Before establishing your portfolio’s asset allocation, first answer these questions:

• What’s the purpose of your portfolio?

Define your portfolio’s purpose. Here are some examples: to reap a lot of money over the short term, so you can make a big purchase such as a house; to generate reliable, future cash flow in retirement; to grow the family estate for your kids and grandkids; to set aside ample cash reserves for entrepreneurial investment opportunities; etc.

• What’s your stage in life?

For example: relative youth (aggressive growth); middle age (moderately aggressive); retirement in the next 10 years (income and moderately conservative); retired (stability and income).

There are several variations. Choose a category based not only on your approximate age, but also on your tolerance for risk. As long-term market history amply shows, you’ll have to withstand a lot of bumps along the way.

• How much wealth do you already have?

What’s your current net worth and how close is it to your ultimate goal? Do you already have a head start, which allows you to shoulder more risk, or are you starting from scratch?

• What’s your self-imposed requirement for a minimum rate of return?

Do you want to reap at least 10% a year? Do you want to at least equal—or beat—the S&P 500? The younger your age, the higher you can set your goals. But be realistic.

• What’s your risk tolerance?

If your portfolio takes a sharp turn for the worse when you’re in your 40s, you still have plenty of time to bounce back. But if your investments take a nosedive while you’re, say, 65, you’re in a far worse predicament.

• Will your financial situation likely get better, deteriorate, or stay the same?

Are you securely ensconced in a paying job that will remain steady for the next few decades? Are you about to retire? Are you afraid of getting laid off?

• Will there be any withdrawals?

If you plan to start taking out money, how much will you withdraw and when?

• What are the regulatory requirements?

Don’t be blindsided by unforeseen rules and regulations. If your portfolio is an Individual Retirement Account (IRA) or 401k, what are the mandatory distribution requirements?

As noted above, basic asset classes include: U.S. stocks; international stocks; fixed income; real estate (real estate investment trusts, or REITs); and cash and cash equivalents (money market). The appropriate percentages depend on your answers to the above checklist.

Editor’s Note: The cryptocurrency market is on a tear so far this year. When considering crypto investments, it’s essential to research them thoroughly and understand their underlying technology.

Every portfolio should have some sort of exposure to crypto. But you need to be informed, to make the right choices. The good news is, the experts at Investing Daily have done the homework for you.

Want to tap crypto’s massive money-making opportunities? Start receiving our FREE e-letter, Crypto Investing Daily. Click here now!

John Persinos is the editorial director of Investing Daily.

To subscribe to John’s video channel, click this icon: