Investment Mistakes Even Smart Investors Make and How to Avoid Them by Larry Swedroe
Author:Larry Swedroe
Language: eng
Format: epub
Publisher: McGraw-Hill Education
Published: 2012-03-03T16:00:00+00:00
MISTAKE 44
Do You Believe Diversification Is the Right Strategy Only If the Investment Horizon Is Long?
On one of Larry’s favorite investing Web sites, there was a discussion about the benefits of diversification. One poster suggested that since his investment horizon was relatively short (10 years), he did not want to take the chance of investing in such risky asset classes as international equities, emerging markets, small-cap stocks, and value stocks. While agreeing that the poster’s investment horizon should affect his asset allocation decision, Larry suggested that he came to the wrong conclusion. In fact, as we hope you will agree, the shorter your investment horizon, the greater the need for diversification across asset classes.
The length of the investment horizon should affect your equity–fixed-income asset allocation decision. The longer the horizon, the more likely it is that equities will outperform fixed-income instruments. Also, the longer the horizon, the greater your ability to wait out a bear market. With that in mind, you might use the following table to help you decide on an equity–fixed-income allocation:
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