6 Asset-Allocation Pitfalls to Avoid

The perils of being too hands-off...or too hands-on

Christine Benz 29 September, 2014 | 2:30PM
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Looking for a hot stock to own for the next few months? An exchange-traded fund that will help you capitalise on trouble in the Middle East? You'll have no trouble finding ideas in the financial media.

Meanwhile, advice on how to apportion your portfolio among stocks, bonds and cash—a much more significant factor in your portfolio's long-term performance—is apt to be much tougher to come by. While there's no shortage of commentators who are willing to predict the market's short-term direction, telling investors to set a sensible stock/bond mix and sit tight is inherently less sexy, so you hear much less about the whole issue. 

Thus, it's probably no wonder that investors so often stub their toes on asset allocation. They may let their comfort level with risk lead the way rather than anchoring their decisions in the numbers, not recognise that their situation is an outlier, or employ overly fancy, high-cost tactical asset-allocation strategies that, in the end, may not perform as well as a simple buy, hold and rebalance plan would have. 

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Christine Benz

Christine Benz  is director of personal finance at Morningstar and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances.

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