Creating Porfolios with ETFs : The Importance of Asset Allocation

For advisors and investors building an investment portfolio, the first step is often determining a broad portfolio allocation that will help satisfy their investment objectives and risk tolerance most comfortably. Numerous studies have shown that the single most important factor driving portfolio returns is the asset mix decision. In fact, the studies have shown asset allocation explains over 80% of portfolio returns. Knowing this, investors’ choice between asset classes can be critical in achieving their desired results.

Asset allocation refers to the percentage weight given to various asset classes. The two most traditional and broad asset classes are stocks and bonds. These two asset classes can be divided further into sub-categories.

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