Houston, TX (PRWEB) August 21, 2009
ArborInvestmentPlanner.com has launched a campaign to educate individual investors of the perils of over diversification and under diversification. Diversification is the single most critical element of investment management. How an investor allocates investment funds to different asset categories or groups is called asset allocation, and is the most important fundamental of diversification. Asset allocation involves dividing an investment portfolio on a percentage basis among different categories of securities (international stocks, domestic stocks, bonds, precious metals, cash, etc). Determining the most effective mix of investment opportunities is the foundation for successful investing.
The main purpose of Asset Allocation is to diversify among asset groups that act differently and thereby reduce volatility of the portfolio as a whole. Asset Allocation is the single most important investment decision. Studies have shown that asset allocation accounts for a majority of the total return of a diversified portfolio. In other words, timing the market and which individual stocks or ETFs are in a portfolio is less important than asset allocation choices.
There are many types of asset allocation, but all follow under either a passive or active strategy. Passive strategies would have set fixed allocations with periodic rebalancing. Active strategies would have asset allocation percentages that vary over time. Active strategies might take into account economic conditions, relative value of the different asset classes, or any other number of outside influences the portfolio manager might believe will affect future returns.
While under diversification may be the biggest mistake investors make, over diversification is also a major reason for poor portfolio returns in today's environment. Over diversification can result in a portfolio behaving like the market. Many investors have experienced the bad results of over diversification during the current decade. Most institutional vehicles (i.e. diversified mutual funds, pension funds, etc) are over diversified and simultaneously lack an asset allocation needed for success.
Determining which assets maximize potential rewards and minimize risk make knowledge and research a critical part of proper asset allocation. Today's investment environment is different from the 1980's and 90's when an investor could depend on equity index funds or any diversified portfolio to provide satisfactory returns. During this decade, proper diversification through active asset allocation has proven to be the best way to profitably invest without taking undue amounts of risk. This has made it harder for the individual investor to invest profitably because they either invest in institutions (i.e. mutual funds, pensions plans) that over diversify, or lack the time, resources, or knowledge to make proper asset allocation decisions.
One solution is for Investors to manage their own portfolio with the help of a portfolio management service such as the Arbor Investment Planner. The Planners' flagship Portfolio, the Arbor Asset Allocation Model Portfolio (AAAMP) uses an active asset allocation strategy and looks for areas of opportunity where prices may not reflect their real value or potential. This takes time and knowledge to research economics, politics, and markets worldwide. Investments are placed in their proper asset allocation category and constantly monitored to keep the desired asset allocation.
Chief Investment Officer of the AAAMP, Ken Faulkenberry states "The Arbor Investment Planner is not a get rich quick strategy, but a disciplined, methodical, and conservative strategy with a track record of out performance and less risk than the market".
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