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Overview: Investment Strategies Continued Asset Allocation Strategic asset allocation, also called Modern Portfolio Theory, is a concept derived from a Nobel-Prize-winning economic theory. According to research, over 93% of investment returns are a result of strategic asset allocation, while only 2.5% are a matter of specific fund selection and only about 4% of investment returns result from market timing and other factors. Asset allocation is likely the most important investment strategy you’ll use. Using asset allocation, you diversify your investments to help optimize your return, while simultaneously reducing risk. It is important to note that neither diversification nor asset allocation can ensure a profit or protect against a loss. Asset allocation can be the master plan that governs all your investment decisions. It works for any age and any stage of life, because it integrates your personal goals with your risk tolerance. The process starts by establishing your goals, then determining your investment time horizon and, finally, determining your tolerance for risk. Use the risk tolerance worksheet to determine your risk. Pictured below are some model portfolios based on different goals, time horizons and risk tolerances that can serve as a guide to selecting a diversified mix of investments. While these hypothetical asset allocation models are not absolute, they provide a useful point of reference that can aid your decision making. Always carefully consider your own situation before you invest. An investment in stocks and bonds involves risk of fluctuation or possible loss of principal. Common stocks involve greater risk than government bonds, as they are more volatile and have a greater potential for loss of principal. These examples are guidelines, not recommendations. < BACK NEXT > #40131