Asset allocation drives returns

Recent market swings have made it clear the rise and fall of our pensions or portfolios are directly proportionate to asset allocation. Investors need to pay more attention to how much of each market they have in their portfolio

Chances are your portfolio and pension fund rise or fall almost exactly in line with the markets, in proportion to the various financial asset classes they hold. Market swings lately made this clear to most of us. In essence, performance flows from the overall mix of stocks, bonds, cash, commodities, and alternative strategies in the portfolio, with only weak effects from any specific choice of individual stocks, funds or managers. The academic literature shows that 90% of returns come from market weights, and at most 10% come from security selection. Informed investors pay far more attenti...