Academic studies have also shown that about 90% or more of portfolio returns are generated by asset class selection and weights. Only about 10% or less of a long-term return is generated by security selection, i.e. purchasing individual stocks.
An aggressive investor will choose a higher weighting for stocks than an investor seeking capital preservation and secure returns.
A popular rule is:
100 – your age = percentage of stocks in portfolio
Rebalancing of your portfolio on a yearly basis to correspond with this allocation will place a smaller weighting on stocks when you grow older and preserve capital for your retirement.
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