Your employer offers two investment presentations and all employees are required to attend one of the two presentations. One presentation is “Stock Market Outlook for the Rest of 2022”. The other presentation is “The Importance of Asset Allocation”. Which presentation would you choose to attend?
I can say with a fairly high degree of confidence that the vast majority of people currently reading this column would choose to attend the first presentation. Many investors feel that knowing which stocks and mutual funds to buy and when to enter and exit the market is the key to investing success.
Nothing could be further than the truth.
Numerous Nobel Prize-winning studies and research over the past 50 years have shown that more than 90% of your portfolio’s performance will be determined by your asset allocation decisions. In other words, asset allocation will have more to do with the success or failure of your portfolio than with finding the best performing individual investments. I know this goes against most everything you see, hear and read in the financial media, but the fact is that asset allocation is one of the most important concepts in asset allocation. ‘investment.
The five benefits of asset allocation
1. Asset allocation keeps your portfolio within your risk tolerance level
2. It keeps you from questioning yourself
3. This means ignoring most everything you see and hear in the financial media about investing,
4. It has the greatest influence on the performance of your portfolio
5. It reduces most investment risk, stress and anxiety
The big problem with asset allocation is that it’s boring. Asset allocation does not attract viewers to business programs on cable, nor listeners to business programs on radio. Asset allocation does not sell financial newspapers, magazines and investment newsletters. Start talking about asset allocation in front of a group of seminar attendees and within minutes eyelids start closing and yawns start popping out.
The simple fact is that many investors (whether they want to admit it or not) make their investment decisions based solely on hunches (“I think the market is going…”) and the opinions of experts and talking heads in the financial media. (“I heard someone on CNBC say…”). It is an investment strategy based solely on speculation.
In my 25 years as an investment advisor, the question I’ve been asked more than any other is “what do I think the market will do?” And every year, my answer is always the same: “Honestly, I don’t know. I have opinions about the market, but I would never invest our clients’ retirement savings based on those opinions.
Successful investing should be based on proven investment techniques, such as asset allocation and diversification, rather than intuition and guesswork. An investment philosophy based on hunches and guesswork is a recipe for financial disaster, not financial security.
Martin Krikorian is Chairman of Capital Wealth Management, a registered investment adviser providing ‘pay only’ investment management services located at 9 Billerica Road, Chelmsford. To schedule a free, no-obligation initial consultation, call 978-244-9254 or email [email protected]