Is there an easy to understand explanation of this statement:

Asset Allocation is more important in determining over all returns of the portfolio as opposed to picking the right stocks.


Assets are many, eg. currencies, buildings, real estate, vehicles, inventories, equipment, precious metals, etc.

Stocks are a special kind of assets, where you hold a bit of the underlying company (or, in the ETF case, little pieces of a number of companies).

A core issue of wealth management is the so-called "Asset allocation", which determines the type, and proportion of asset classes to hold, and invest in. (Fictional) example: 30% in real estate, 30% in index-tracking mutual funds, 20% (hand-picked) stocks, 10% bonds, and 10% gold.

In this example, 80% of the portfolio is independent of "picking the right stocks" -it's rate of return will be determined by other factors, than individual company's performance on the market.

In conclusion, Asset Allocation is one step "above" stock picking -it's determining the kind of classes you wish to go with in the first place- and hence, in the vast majority of cases, will be more important in ROI calculation, than the vehicles under the "stock" asset.

Hope this makes sense -comment if further clarification is needed.

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