http://www.BecomingYourOwnBank.com presents: Interviews with Dan Thompson, financial expert.
Does Asset Allocation Really Work?
“Well asset allocation models were designed by the investment community to basically help their clients sleep better at night, to feel warm and cosy. To help them understand if you didn’t have all your eggs in one basket maybe you could feel better about the risk you were taking in your portfolio.
“The problem is that asset allocation models are typically designed after the fact. A good case and point: if you go back five years or so you probably wouldn’t find many models out there that included precious medals and in particular gold.
“But now that we’ve seen gold on the rise over the last couple years what you’re going to find is there’s several asset allocation models that now include precious medals and in particular gold.
“The problem with that is, it’s telling you what the real issue is, and that is these models are designed after the fact.
“If there was a way to design the model before something happened, then they might have some value.
“But looking at past performance, creating a model, and showing what would have worked for the last 10 years, doesn’t necessarily mean it’s going to work for me in the next 10 years.
“I think the most important thing about investing at all is DON’T LOSE MONEY. And unfortunately, asset allocation isn’t going to prevent that from happening.”
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Duration : 0:1:53