According to David Darst writing in The Little Book that Still Saves Your Assets, John Wiley & Sons Inc., 2013, 90% of the difference in returns for large US pension funds over the years is related to their asset allocation. What is the meaning of that sentence? Asset allocation has three main criteria: make money, not lose money, and re balance the asset mix. Although making money seems easiest, having a goal of why you want to make money will help simplify your world. Having established the why, to make money over the long term is not to lose it. If you invested and make 40% one year, lose 30% the following year, after 2 years and assuming a great deal of risk you have made 10% or 5% a year. For those returns, there are many less risky investments. The third part of the criteria was to re balance your asset mix. Not every asset class or sector does well every year. As your assets increase, it is important to ask, if something negative affects the markets, which of your assets will be affected most and which assets should be the least affected. Often times we own shares in companies we know and linked to our geographic area. Sometimes that is very good, sometimes not so good. Re balancing means that your are aware that most companies go through cycles, as the cycle moves down lessen your holdings and buy something that should be in the growth phase of its cycle. You do not have to sell everything, but be conscious of possible effects.

Linking to dividend paying stocks, while this blog believes you will lose less money with dividend paying stocks, and given the two returns of a dividend and stock appreciation over time making money should be easier. The re balancing is important as your portfolio gets larger and larger. If you look at the Dow Jones from 50 years ago to the companies in it now, some have changed. In terms of dividend producing stocks the signal to begin considering change is when a company thinks of lowering its dividend to save money or to pay other bills.

There are more questions than answers, till the next time – to raising questions