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Asset allocation determines investment returns more than individual stock pick from "summary" of The Psychology of Money by Melody Jefferson,Morgan Housel
When it comes to investing, many people believe that picking individual stocks is the key to success. They spend hours researching companies, poring over financial statements, and trying to predict which ones will outperform the market. However, what they often fail to realize is that asset allocation plays a much bigger role in determining investment returns than individual stock selection. Asset allocation is the process of spreading your investments across different asset classes, such as stocks, bonds, real estate, and cash. The idea is to create a diversified portfolio that can help manage risk and maximize returns over the long term. Research has shown that asset allocation accounts for the majority of the variability in a portfolio's returns, with individual stock selection playing a much smaller role. One of the main reasons why asset allocation is so important is that different asset classes tend to perform differently under various market conditions. For example, when stocks are performing w...
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