Plan Your Prosperity: The Only Retirement Guide You'll Ever Need, Starting Now--Whether You're 22, 52 or 82

Chapter 3

The Secret Code—Asset Allocation or Benchmark?

Why is being as specific as possible about goals so critical for investors? Because goals play a crucial part in determining benchmark.

Many argue (correctly, in my view) the asset allocation decision is the most important driver of investment returns. (For relative newbies, asset allocation is the selection of stocks, bonds, cash and/or other securities, and in what percentages.) And it is! Very important!

But my view is the benchmark effectively is your long-term asset allocation decision. It will drive and guide tactical asset allocation decisions and any other later investing decisions you make. Picking the appropriate benchmark can mean the difference between increasing the odds of having the retirement you plan for and being unpleasantly surprised far too late to do much about it. That’s no way to plan your prosperity.

This chapter covers:

• What exactly is a benchmark?
• Why asset allocation is so important.
• The dangers of letting age, and age alone, determine asset allocation.
• The difference between a benchmark and a flexible strategy.