Asset allocation is the process of working to be patient and still make money with your investment strategy. Warren Buffet said “The stock market serves as a relocation center at which money is moved from the active to the patient”. In the movie “Cars”, Lightning McQeen had to learn how to be a little patient and how to make his speed work for him. Doc taught him this with the lesson of how to drive in dirt. This is similar to what needs to be done with an asset allocation approach. The investor will want to purchase stock in a number of different growing companies that will diversify his investment. This will serve to provide a controlled speedy return with minimal risk.

There have been many different articles and debate on asset allocation. There are many different mixes that can be considered with this investment style. The most common one is the equity/bond mix. However, there is also the domestic/international equity mix, the nominal/inflation-adjusted mix of bonds, or what mix of indexed funds or market capitalization weights should be used. The proper mix of efficient tax free funds is also a consideration.

There are asset allocation calculators available that will help you to determine an optimum mix of asset investments to have both high returns and a minimal amount of risk. Warren Buffet also is reported to have said, “Risk comes from not knowing what you are doing.” It may be a good idea to talk to a stock broker, or to use the asset allocation calculators to arrive at what makes sense for you with your goals and risk aversion.

One of the problems with the asset allocation calculators is that they are using previous statistical data. It may be that things have changed with the stocks dynamics. This may cause a false reading on your optimum asset allocation. There are some theories that asset allocation using old data is a waste of time. I do not feel that this is the case. I think that a person can use what feels right for them, and determine an investment mix that works for them. This investment mix can be tweaked over time. Whatever mix an investor arrives at, it should definitely be rebalanced on an annual basis to maintain the original mix. Rebalancing is the process of selling the stocks that have done well and purchasing additional quantities of stocks that have lagged. This strategy serves to allow the investor to make money by buying low and selling high.

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