MAKE A PLAN AND STICK WITH it. That’s one piece of investing advice that gurus of all sorts—no matter how they approach the market—agree on. What they’re talking about is having an asset allocation plan, which divvies up your money into stocks, bonds, cash and other assets in appropriate proportions according to your goals, how long you plan to invest and your tolerance for risk. The advice is sound. By spreading your money among different kinds of assets—diversifying your investments, essentially—you lower the chance that you’ll lose money because, theoretically, they won’t move in lockstep.
But asset allocation strategies were seriously tested in 2022, when stocks and bonds fell in tandem. Diversification goes out the window during such market crashes, “just when investors need it the most,” says Sebastien Page, chief investment officer at T. Rowe Price and author of Beyond Diversification: What Every Investor Needs to Know About Asset Allocation.
Even so, asset allocation matters. One old Wall Street saw says it drives 90% of portfolio returns. But in fact, asset allocation affects portfolio volatility more than returns. “You engage in asset allocation because, like ballast in a boat, you want to minimize the sway of the portfolio,” says Sam Stovall, chief investment strategist at investment research firm CFRA Research. More important, “because you’re smoothing out the fluctuations, your emotions are less likely to become your portfolio’s worst enemy,” he says.
This story is from the August 2023 edition of Kiplinger's Personal Finance.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the August 2023 edition of Kiplinger's Personal Finance.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber? Sign In
A SOLID YEAR FOR THE KIPLINGER 25
All but one of our favorite actively managed, no-load mutual funds gained ground as markets recovered.
YOUR VACATION HOME COULD PROVIDE TAX-FREE INCOME
If you plan to rent out your vacation home, it's important to understand how your proceeds will be taxed.
IT'S NOT YOUR IMAGINATION: YOUR CEREAL BOX IS SHRINKING
To avoid raising prices, some manufacturers are reducing the size of common grocery items. Here’s how to fight back.
SHOULD YOU WORRY ABOUT BEING LAID OFF? IT DEPENDS ON YOUR INDUSTRY
Downsizing has hit certain sectors. But cutbacks may be slowing, and some companies are expanding.
How identity thieves are exploiting your trust
Con artists themselves are disguising as well-known brands to steal your money and personal information.
CUT THE COST OF YOUR WIRELESS BILL
AT&T, T-Mobile and Verizon dominate the market, but smaller outfits offer similar network coverage at lower prices.
MAKING HOME ENERGY MORE AFFORDABLE
Households in need can get energy-efficiency upgrades, help with utility bills and more from this nonprofit.
A HEAD START FOR SAVERS
The Saver's Credit is designed to help low- and middleincome taxpayers contribute to a retirement account.
Say I Love You With a Money Date
To nurture a lasting bond with your partner, meet regularly to talk about money.
Plan for Your Own Elder Care
AFTER I wrote a series of columns in 2022 about elder care planning for family members, I received a number of responses like this one: “What about married couples who have no children or whose family members don’t live nearby?” wrote one reader. “Or a single individual with no close relatives? How should these people plan for their own elder care?”
