Which of the following factors is expected to be the key contributor to total returns over the long-term: O a. Asset Allocation • b. Security Selection O c. Currency Management O d. Management Expertise O e. Luck
Question
Which of the following factors is expected to be the key contributor to total returns over the long-term: O a. Asset Allocation • b. Security Selection O c. Currency Management O d. Management Expertise O e. Luck
Solution
a. Asset Allocation
Over the long term, asset allocation is generally considered to be the key contributor to total returns. This is the process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The purpose of asset allocation is to reduce risk and create diversification by dividing assets among major categories. The mix of asset classes, and the percentage of your portfolio you devote to each one, can be a bigger factor in determining your overall investment portfolio returns—and volatility—than the specific securities you pick.
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