How important is asset allocation?

When you realize that whether or not you achieve your financial goals will depend, in large part, on how well you position your assets, you’d have to say it’s one of the most important decisions an investor can make. According to Ibbotson & Associates, asset allocation accounts for nearly 92% of the overall portfolio performance, with stock selection accounting for only 4% and market timing accounting for less than 2%. All other factors account for less than 2%. This clearly shows that how you allocate assets may actually be more important than the individual investments you choose. The ultimate goal, of course, is a secure retirement. How soon you retire, how long the money will last, and in what style you retire can be greatly affected by your decision and our guidance on asset allocation. We spend a lot of time in this area with our clients and systematically rebalance their portfolios back to their target allocation because this reinforces the buy low, sell high discipline.