Investment is in a new era
A new era of investing has begun. The times when we could blindly invest in indexes and expect strong returns are gone. Instead, this new investment environment requires a more sophisticated, active approach to generating attractive returns and controlling risk. This approach is asset allocation.Asset allocation is a method for determining what mix of investments is likely to produce the most appropriate returns for a given level of risk. The idea is to invest in the right blend of stocks, bonds and cash and to adjust the mix as market conditions change. A 1986 study found that over 10 years, more than 90 percent of the difference in returns among a group of large pension plans resulted from decisions about the asset mix, rather than from security selection. Such studies indicate that getting the asset mix right is the most important part of successful investing.In 1988, the Nobel Prize in Economics went to Harry Markowitz and others, who developed a statistical model called the Capital Asset Pricing Model. This model indicates that a mix of stocks and bonds can potentially provide significantly higher returns, with less risk, than an all-bond portfolio. The model also indicates that while the long-term return of a mix of stocks and bonds is not as high as the return of an all-stock portfolio, the volatility of a blend of stocks and bonds is substantially lower than with a pure stock portfolio.While asset allocation and investment timing cannot eliminate the risk of fluctuating prices and uncertain returns, it seeks to improve on a static blend by making tactical shifts among asset classes to improve the balance of return and risk.Successful asset allocation involves looking at the market as a whole and evaluating a wide variety of indicators to determine which types of investments are most attractive.Psychological and monetary indicators suggest where investors are going and which assets are likely to generate attractive returns. Market valuation indicates the expected magnitude of any move in the markets. You can implement asset allocation in your own portfolio in several different ways. Custom asset-allocation recommendations are available for individual clients to identify a mix of stocks, bonds, cash, and even international securities that fits their goals and objectives. An investment professional trained in providing asset-allocation advice should be consulted.Remember, asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. Past performance is no guarantee of future results, and global/international investing involves risks not typically associated with U.S. investingThe accuracy and completeness of this material are not guaranteed. The opinions expressed are those of Fraser M. Horn and Dudley M. Irwin and are not necessarily those of Berthel Fisher or its affiliates. This material is distributed solely for information purposes and is not a solicitation of an offer to buy any security or instrument or participate in any trading strategy. Provided by courtesy of Fraser M. Horn and Dudley M. Irwin, Investment Advisor Representatives with Berthel Fisher in Edwards. Registered representative of and securities offered through Berthel Fisher & Company Financial Services, Inc. Member NASD/SIPC. 1st & Main Investment Advisors is independent of BFCFS.
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