Asset Allocation

To some, stocks are irresistibly cheap right now. The price-to-earnings ratio on the Standard & Poor’s 500-stock index is 12 to 13, lower than its historical average of closer to 17.

Skeptics [...] argue that the March gains were nothing more than a suckers’ rally — a brief respite before another, even bigger roar of the bear market.

Speculation abounds regarding where things are headed next. Some believe that as ‘history rhymes’ the best bet is to stick to fundamental investing principles. Others disagree, arguing that the rules have changed and/or the United States (stock market, economic system, etc.) has entered a period of inevitable decline.

Whatever your worldview, the larger issue though is asset allocation. Proper asset allocation is arguably the most important factor for the average portfolio; indeed, even for the well-heeled, as diversification could have helped avoid the significant hits some took recently as a result of fraud and other bad bets.