Asset allocation describes how your investments are diversified among specific categories of assets, such as large cap stocks, international stocks, bonds and real estate. At Tribeca, we focus on asset allocation as the chief tool to balance investment risk and expected return, based on your Investor Profile.
Investors should choose portfolios that not only maximize expected returns, but through diversification, choose portfolios that offer the highest expected return for a given level of risk.
– Harry Markowitz, 1990 Nobel Laureate in Economics
The Revolution Begins
In 1952, Harry Markowitz wrote an 18-page doctoral thesis at the University of Chicago that changed investing forever. He demonstrated that asset allocation is the most important element in performance, and that diversification mitigates risk. This challenged the conventional wisdom of the time that stressed analysis of individual securities and concentrated stock holdings.
Markowitz was the first in a long line of Nobel Laureates and other financial thinkers who revolutionized the field of investing. As the beneficiaries of their research, Tribeca manages client investment portfolios using the best investment practices developed over the last 50 years.
What Determines Investment Performance?
Asset allocation accounts for at least 96% of investment performance. The other 4% consists of market timing and stock selection. See the chart below for a visual representation.