Dealing with risk — diversified asset allocation

Diversified asset allocation, the belief system that most investment advisors preach—has the “right”  mix of stocks, bonds, real estate, commodities spread out over the entire world.   This investor age dependent mix is rebalanced, typically quarterly, by reducing your investment in areas that have performed well and increasing your stake in areas that are now underweighted—presumably waiting their turn to perform.

I don’t think this is a bad strategy, but it does make the assumption that the future will be like the past (e.g., equities average around 10% growth per year over multi-decade periods, and that some assets classes like bonds and commodities tend to counterbalance trends in equities.

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