You might be surprised to hear that the Securities and Exchange Commission has published one of the most helpful articles on asset allocation. As you probably know, asset allocation is one of, or perhaps the most important determinants of long-term investing success. Entitled “The Beginner’s Guide to Asset Allocation”, this well-written piece is not just for total newbies.
Here’s a quote from the article:
For the layman, definitions and explanations are pretty clear. One of things we really like is the referral to the calculator over at the Iowa Public Employees Retirement System. You might play around a bit and see whether your time horizon and risk tolerance seem to jive with the way you’ve been investing so far.
So there’s a lot to like about the cogent explanation of asset allocation itself, but not so much about why it is supremely important, or how to stick to a plan (or revise one) over time. In addition, we’d like to see a lot more coverage of assets besides the old standbys, “stocks, bonds, and cash”. Surely the average investor should at least consider slight exposure to alternative asset classes. (By alternatives, we mean commodities, real estate, guaranteed products, managed futures, and others.) Alternative asset classes don’t correlate very well with the stock and bond markets, which at least in theory means that your portfolio could be more diversified and more buffered against traditional market volatility.