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Focus on asset allocation from "summary" of A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Twelfth Edition) by Burton G. Malkiel
One of the key principles emphasized in this work is the importance of asset allocation in successful investing. Asset allocation refers to the division of investment funds among different asset classes, such as stocks, bonds, and cash equivalents. The idea behind asset allocation is to spread risk across a variety of investments in order to achieve a balance between potential returns and potential losses. The concept of asset allocation is based on the recognition that different asset classes have different risk and return characteristics. By diversifying across asset classes, investors can reduce the overall risk of their portfolios while still potentially earning competitive returns. This strategy is often referred to as the "free lunch" of investing, as it allows investors to achieve a higher level of risk-adjusted returns without taking on additional risk. Asset allocation is a simple yet powerful concept that can have a significant impact on investment performance. Research has shown that asset allocation accounts for the majority of the variability in investment returns over time, far more than individual security selection or market timing. By focusing on asset allocation, investors can build a well-diversified portfolio that is better positioned to weather market fluctuations and achieve long-term financial goals. One of the key advantages of asset allocation is its ability to smooth out the ups and downs of individual asset classes. For example, when stocks are performing poorly, bonds or cash equivalents may help offset losses and preserve capital. Conversely, when stocks are performing well, the returns from other asset classes may help boost overall portfolio returns.- Asset allocation is a fundamental principle of successful investing that can help investors achieve a balance between risk and return. By diversifying across asset classes, investors can build a well-rounded portfolio that is better positioned to achieve long-term financial goals. Through careful asset allocation, investors can potentially increase the likelihood of success while minimizing the impact of market volatility.
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