THE investment decision requires the commitment of current resources in the expectation of deriving more in the future. To reap the benefits, one sacrifices something of value now, expecting that the future will be better because of the commitment of time and effort. To prepare for retirement, for example, one should start saving at a very early stage. It is important to devise a plan and stick to it with clear goals. The earlier the preparation, the better it will be to take advantage of the compounding effect.
Professional asset managers believe that the asset allocation decision must take precedence over the choice of individual securities. In other words, one must begin by deciding on a portfolio mix across categories such as money market assets or cash equivalents, fixed-income securities like bonds, stocks, global stocks and bonds, real estate, and precious metals and other commodities. It is only after the allocation is determined that one should choose specific securities. Each asset class is best given a proportional share that addresses the investor's level of risk.
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