The Long Run: Pick Up the Pieces of Your Asset Allocation Puzzle

"One of the dumbest things individuals do is put $1 more than necessary into their company's shares," said Thaler, who finds many investors erroneously perceive their employer's stock as a separate, safer asset class. Making matters worse: Your livelihood (i.e. job) and your retirement are hindered when the company's fortunes turn sour.

Portfolio Pitfall #6: You Think You're So Smart

"You are not a unique and special snowflake" -- Tyler Durden, Fight Club.

This quote may not be true in all endeavors in one's life. But when it comes to investing, the odds of it being correct are about 99%.

Stock-picking, market-timing, daytrading -- all that stuff was fun and easy in 1998 and 1999. Everything was going up. It was akin to going to the races and having every horse that finished pay off. Here's a rule of thumb: When investing is fun, odds are it's about to get not-so-fun. And the more fun you're having, the more prolonged the not-so-fun part may be for you.

A lot of extremely smart people have attained advanced degrees and work 100 hours a week trying to discern the short and intermediate-term moves of the market. I can't name one who's right all the time. How can we expect to be?

If you really want to prove you're smarter than the pack, invest for the long run. Get started with your asset allocation.

Next week, we'll offer a few asset allocation strategies, from the simple ("lifestyle" funds that diversify your assets for you) to more elaborate (adding sector allocations to increase your long-term returns while keeping risk and diversification in check.) We'll also examine historical trends to try to determine how you should allocate your assets for the next 20 years.

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