MODERN PORTFOLIO THEORY AND ASSET ALLOCATION STRATEGIES.The temptation to time the market is universal. History is full of examples of financial euphoria and "can't miss" investment opportunities: One instance is the tulip-bulb mania that struck Holland in 1630. People from all walks of life viewed tulips as a way to get rich fast, and prices soared to such heights that one bulb cost more than a Rembrandt painting. Then, in 1637, almost overnight, prices collapsed and fortunes were swept away. This is precisely the problem with market timing. It requires not only foretelling the future correctly to be invested in those securities that are about to appreciate in value, but also knowing when to get out. Not only is it impossible to accurately time the market, but also the costs of anything but perfect market dining can severely damage an investor. Being out of the market during only a few of the best trading days In Business, the trading day is the time span that a particular stock exchange is open. For example, the New York Stock Exchange is, as of 2006, open from 09:30AM to 4:00PM. Trading days never take place on weekends. can ruin a portfolio's long-term returns. (See table.) How many of us can predict the future? Not many. Fortunately, for the investor, asset allocation Asset Allocation The process of dividing a portfolio among major asset categories such as bonds, stocks or cash. The purpose of asset allocation is to reduce risk by diversifying the portfolio. involves diversifying assets in order to minimize risk for a given level of return. It is the only scientific strategy that blends portfolio diversification Portfolio diversification Investing in different asset classes and in securities of many issuers in an attempt to reduce overall investment risk and to avoid damaging a portfolio's performance by the poor performance of a single security, industry, (or country). , long-term trends and the specific level of risk you want to assume into a personalized per·son·al·ize tr.v. per·son·al·ized, per·son·al·iz·ing, per·son·al·iz·es 1. To take (a general remark or characterization) in a personal manner. 2. To attribute human or personal qualities to; personify. investment plan. With asset allocation, you achieve an "efficient" portfolio by striking an optimal mix between return and risk. Asset allocation is probably the most personal investment approach because it takes shape from your attitudes regarding risk and wealth. Furthermore, it changes with your changing needs. As you move through different stages of life, you adjust the portfolio. When using modern portfolio theory Modern portfolio theory Principals underlying the analysis and evaluation of rational portfolio choices based on risk return trade-offs and efficient diversification. modern portfolio theory See portfolio theory. as your investment strategy, the most important goal is developing a long-term investment policy that will guide you over many years. This policy enables both you and your investment advisor Investment Advisor 1. A person making investment recommendations in return for a flat fee or percentage of assets managed, known as a commission. 2. For mutual fund companies, it is the individual who has the day-to-day responsibility of investing and monitoring the cash and to protect your portfolio against unplanned or hasty revisions. Asset allocation can provide a balanced, rational approach to building long-term wealth. If iimplemented with discipline, it can bring order to a per- manently uncertain investment environment. Raul A. Zubillaga, CFA (Computer Fraud and Abuse Act of 1986) Signed into law in 1986, the CFA was a significant step forward in criminalizing unauthorized access to computer systems and networks. The Act applies to "federal interest computers" that include any system used by the U.S. , is the director of asset allocation and advisory services advisory services advisory services provided to the public, in their capacity as owners and managers of animals, are an important part of veterinary science. They may be provided by government bureaux, by commercial companies who deal in pharmaceuticals or animals or animal at Banco Santander Central Hispano International - Miami. Rene Rivero is an investment analyst in the asset allocation and advisory services department.
S&P 500 ANNUALIZED RETURN 1981-2000
All 5,087
trading days 12.3
Less 10 best
trading days 9.4
Less 20 best
trading days 7.5
Less 30 best
trading days 5.7
Less 40 best
trading days 4.4
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