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FULTON ACTOR
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hh g u health th ro health th ro Asset Allocation Can Make
a Big Difference in
Your Investment Return
Abstract: Putting your investments
into the right mix of assets can be
the most important factor in how well
they perform.
Some investors think the key to success
is in picking the “right” investment. They
follow the trends and put everything into
the hottest category. And then they’re
surprised when that category cools off.
In fact, picking the right investment or
the right time to buy or sell is far less
important than you may think. Studies
have found that approximately 90% of
the variability of investment return across
time is explained by asset allocation—that
is, the distribution of dollars among asset
classes, such as stocks, bonds, and
cash equivalents.
Asset allocation—sometimes referred
to as diversification—simply means
determining what percentage of your
portfolio will be in stocks, bonds and
money markets, and within each of those
groups, which particular types of stocks
and bonds. For example, a portfolio may
be 50% invested in stocks, and within that
group, some may be in stocks of large
companies, some may be stocks of small
companies, and some may be in stocks of
non-U.S. based companies.
The reason for asset allocation is that
different investments can behave
differently under the same conditions;
for example, small company stocks may
rise in value while large company stocks
decline. Stocks and bonds often perform
in different ways, so investing in a mix of
stock and bond funds can improve the
performance of your overall portfolio,
cushioning your savings against price
swings in one asset class.
In terms of return, a diversified portfolio
containing both stocks and bonds will
generally perform better than either an
all-stock or all-bond portfolio over a full
market cycle. During the bull market
of 1995-1999, a diversified portfolio
achieved higher returns than an all-bond
portfolio. During the bear market of
1999-2002, the diversified portfolio
outperformed the all-stock portfolio. Of
course, diversification does not eliminate
risk, and past performance is no guarantee
of future results.
Your Particular Mix is a
Personal Decision
A diversified portfolio, typically includes
at least three categories of investments:
stocks, bonds and money market
investments. How much should you
allocate to each category? Your financial
professional can help guide you, based on:
• Your investment goals. If you’re
investing with the hope of generating
big returns, and you have the tolerance
for the increased risk involved, you
might consider placing greater emphasis
on higher-risk growth-oriented
investments, such as stocks.
• Your time horizon. If you have many
years until you’ll need the money, you
can often afford the risks associated with
growth-oriented investments, because
you have time to help recoup any
potential losses. Money that you’ll need
soon should generally be in lower risk
investments, such as bonds or money
market funds.
By Rich Friedman
• Your tolerance for risk. Can you handle
a drop in the value of your investments
without pulling out in a panic? Don’t rely
on volatile investments if you can’t stay
the course.
• Your financial situation. Do you have
other resources, or are you low
on funds and near the end of your
working career? This, too, will help
you determine how much risk you can
afford to take.
Asset allocation can help you manage
risk and potentially increase your returns.
However, it does not guarantee a profit or
protect against loss. For more information,
contact your financial professional.
AXA Advisors, LLC does not provide
legal or tax advice. Please consult your
tax or legal advisor regarding your
individual situation. FLL
Rich Friedman offers securities through AXA
Advisors, LLC (member NASD, SIPC) 1755
Oregon Pike Lancaster PA, 17601 and offers
annuity and insurance products through an
insurance brokerage affiliate, AXA Network,
LLC and its subsidiaries.