Tuesday, January 13, 2009

The AAII Basic Truths About Portfolio Management

The American Association of Individual Investors is a group that puts together a wealth of materials for, as their name implies, individual investors. Although I am not a member of the full subscription plan, I do peruse their material from time to time and came across the link above. In this artcile, the AAII presents some basic truths about portfolio management that I thought were worth mentioning here. What follows are not all the details so I encourage you to check the full article out.

Portfolio management is a large topic covering many different topics. Here are a few of my favorites from the article:

  • A fixed-weight strategy, with rebalancing at least annually, is an excellent strategy and should be considered the cornerstone of effective portfolio management.
  • Effective portfolio management practices avoid market timing.
  • A portfolio's risk can be moderated by mixing stocks and debt.
  • A portfolio management truism to use as a guide state that the longer the investment horizon, the larger the portion of the portfolio that should be allocated to stocks.
  • As part of their portfolio management plan, everyone should have some exposure to stocks, even a conservative 80-year-old couple.
  • Diversify within the stock portion of the portfolio. In particular, an investor should always have an exposure to large-value and large-growth stocks.
  • International stocks should be a part of everyone's portfolio, with the possible exception of the elderly.
  • Young investors should put more emphasis on international stocks, small stocks, and growth stocks while older investors should put more emphasis on large-cap stocks, especially value stocks.
  • As one ages, shift the bond portion of the portfolio from primarily long-term bonds to primarily intermediate-term or short-term bonds.
I skipped a couple as I did not totally agree with them - have a look to see which ones those were and let me know ifyou disagree with me leaving them out!

This article was written by The Dividend Guy. You may email questions or comments to me at info@thedividendguyblog.com.

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