Importance of Asset Allocation: Sub-Asset Class Contributions

The asset classes included in our asset allocation models are selected for the contributions they are expected to make to the overall portfolio. To further enhance diversification opportunities, broad asset classes are divided into sub-asset classes. The selected sub-asset classes, and their expected portfolio contributions, are summarized below.

Generally, more conservative asset allocation models have higher bond allocations with smaller stock allocations, while more aggressive asset allocation models have higher stock allocations with minimal bond allocations.

“A very low-cost index fund is going to beat a majority of professionally-managed money. The gross performance [of actively managed money] may be reasonably decent, but fees will eat up a significant percentage of the returns.”

Warren Buffet, Berkshire Hathaway

2007 Shareholders Meeting

“All the time and effort that people devote to picking the right fund, the hot hand, the great manager, have in most cases led to no advantage.”

Peter Lynch, former Fidelity Magellan Fund Manager

Beating the Street, 1993

"The industry as a whole cannot outperform the market because they are the market, and long-term statistics revealing negative returns for the class of active managers confirms it. Yet, what a price investors are willing to pay!"

Bill Gross, PIMCO Co-founder

Former Manager of World's Largest Bond Fund