Asset Allocation Newsletters: The right balance.

Asset Allocation Newsletters are basically buy-and-hold letters, most commonly issued by advisors connected to the brokerage industry or Financial Planners who are not professional portfolio managers. These infrequent traders, quarterly at the most, are designed to give the subscriber an idea of which assets classes (stocks, bonds, etc.) will out perform and which will under perform. The subscriber then knows whether to be more heavily into stocks, bonds, gold, and if a fancier letter, real estate. This type of newsletter can be the first step to successful portfolio management. Asset Allocation is supposed to help reduce exposure to portfolio volatility and it does. If you only hold 50% of your portfolio in stocks, then only 50% of your portfolio can be hurt in a stock market crash. Unfortunately, in can reduce portfolio performance as well. See Asset Allocation Friend or Foe?

One of the most important items to know is that Asset Allocation letters nearly always have exposure to each asset class. This means that even if the stock market is headed for a serious down turn, an Asset Allocation letter would probably still recommend a position in stocks! I've seen rare recommendations at a low of 35%, but typically the lowest allocation to stocks is 50%. This can be hazardous to your portfolio's health. On the same theme, I have rarely seen recommendations for stocks higher than 85% but more often between 65% and 75%. This absolutely reduces risk but at the expense of growth in stronger markets.

There are also few but significantly enough times when the different stocks, bonds, gold and yes, even real estate funds decline at the same time, and times when they all increase. When increasing, things are great, but when declining together, even three of the four asset classes can near eliminate a portfolio. Asset Allocation Newsletters don't usually have a worst case scenario recommendation. If the investor wants to avoid holding any asset or multiple asset during their declining phases, they should look at Mutual Fund Switching, Sector Investing letter that offer recommendations for moving between various asset classes or better yet, a Market Timing Newsletter .

Overall, Asset Allocation letters can help reduce your volatility and market risk, but also limit your upside potential. With portfolio movement averaging around three to four times per year, they are a great first step into the arena of active management.