I will not talk about all academic studies written on the subject, but more about experience.
First point to remember, asset allocation represents approximately 80% of performance, the choice of securities a mere 20%. So focus on asset allocation since this is the only strategic decision to be made, all the rest is tactical.
Broadly speaking there are 8 asset classes:
- Cash (including time deposits)
- Bonds: investment grade or junk (high yield); government or corporate; short-term, intermediate, long-term; domestic, foreign, emerging markets
- Stocks: value or growth; large-cap versus small-cap; domestic, foreign, emerging markets
- Real estate
- Foreign currency
- Natural resources (soft commodities, metals, energy)
- Precious metals
- Luxury collectibles such as art, fine wine, automobiles, etc.
- Strategic asset allocation
- Tactical asset allocation
- Methodology/style of fund/manager
- Stock ideas/stock selection
- Discounts or deals
- Tips and hot ideas
In 2008, only tactical asset allocation was really important: move to cash.
In the future, if you do not want to belong to the tens of million of savers who lost $50 trillion in 2008:
- Take out emotion
- Be focused
- Be disciplined
- Design your own personal strategic neutral
- Do not be disturbed by media noise
- Do not go beyond your risk appetite