Asset allocation is probably the most important factor in achieving long term success as an investor.The proper asset allocation has many factors which go into it such as a person’s age,risk tolerance,and the goals the person has set to achieve with the money.This is one reason people use financial advisors and planners to invest the money for them.Yet many people still do not have a proper balance between all the asset classes.

Why is this so? Obviously,an individual investor just may not have the knowledge to do it properly themselves.That is why many people turn to financial advisors and planners.Yet,many clients of these advisors are still not properly diversified among the various asset categories.Why is this so? It seems that old habits die hard.Many of these advisors and managers began their careers during the 80s and 90s,the heyday of the US stock market.It became ingrained in their thinking that only US stocks rise and particularly hot sectors such as tech and financials always go up.So what do many of these money managers do?They load up their clients with stocks and mutual funds that are mainly US based and then leave just a portion of the portfolio for bonds and money market funds.This is not a proper allocation!

A proper allocation should be broadly based and included large and small cap US stocks,bonds, real estate,international stocks and bonds,and commodities or commodity related stocks and ETFs.Yet,many people have almost nil in international stocks and bonds or commodities.Many advisors say that only 5% should be international as it’s too risky.Yet most of the economic growth and stock market returns in the last decade has occurred in the rest of the world and most Americans have missed it.And commodities? Most advisors after they are done laughing,mouth the word bubble and allocate 0% to commodities.Yet the highly prestigious study from the Yale School of Management’s Center for International Finance study of financial markets from 1959 to 2004 showed that commodities produced comparable annual returns to stocks and better return than bonds while exhibiting less volatility than the S&P 500 index over the same period.Perhaps this is why the Yale endowment fund has since 1985 had average annual returns of nearly 18%.Yet many ordinary investors have had such poor returns this decade.Long term investors should definitely keep a keen eye on what their advisors are telling them and make sure they are truly diversified.