The Underpinnings of Asset Allocation
At the core of asset allocation is a simple principle: You’re always better off with a diversified portfolio that holds several different types of investments at the same time rather than a concentrated portfolio with just one asset in it, let alone a single security. Translation: Having many eggs in your proverbial nest is better than having a single fragile one.
That’s because it is simply impossible to know with certainty which investments will make the most money and which will lose the most in a given stretch of time. So by having at least some exposure to all of the basic asset classes at all times, you’re assured that at least some portion of your portfolio will be in investments that are ...