Allocation Importance

Allocation Importance - Asset Allocation Isn't All, But It...

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Asset Allocation Isn't All, But It Does Have Impact WSJ , October 7, 1997 True or false? It's one of Wall Street's favorite statistics: 93.6% of a portfolio's performance can be explained by its long-run strategy for divvying up money among stocks, bonds, and cash investments like savings accounts and money-market funds. Financial advisers often quote this number as they try to persuade clients to stop chasing the latest investment fad and instead buy well-diversified portfolios that include a healthy dose of stocks. That would seem like an entirely worthy goal. Yet the study behind the 93.6% figure has come under fire. As the debate over the study heats up among financial planners, money managers and journalists, it is clear that the whole issue has become hopelessly confused. Some critics claim that the original study argued for a single-minded focus on the stock- bond-cash mix, which is known as your "asset allocation." One national publication seems to think that the current debate is about the virtues of investing in new asset classes, like micro- cap stocks and emerging markets. Both are dead wrong. So what is the debate about? At issue is a 1986 article by Gary Brinson, L. Randolph Hood and Gilbert Beebower. They figured that, on average, 93.6% of the variation in a portfolio's quarterly performance could be attributed to its typical mix of stocks, bonds and cash. By contrast, security selection (the actual investments bought) and market timing (shifts
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This note was uploaded on 09/27/2009 for the course UGBA 133 taught by Professor Distad during the Summer '08 term at Berkeley.

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Allocation Importance - Asset Allocation Isn't All, But It...

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