10. Product Allocation Is the New Asset Allocation
“Asset allocation explains 95% of investment performance.”
In the early years of our financial life, as we are busily working and converting our human capital into financial capital, the single most important piece of economic wisdom that one should strive to implement is the concept of diversification. Proper diversification is usually practiced by making sure that our financial capital is allocated across many diverse and uncorrelated asset classes, which hopefully do not share the same risk factors as our human capital. Indeed, asset allocation—whether it is across stocks and bonds, value and growth, small cap and large cap—is the cornerstone of diversification. The two ideas go ...