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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: TimbaBear who wrote (13852)	2/4/2002 10:48:57 AM
From: Bob Rudd	Respond to of 78748

<<When you speak of asset allocation what do you mean?>>Good question. Most broadly, when you look at the type of situation Paul brought up, or any situation involving retirement fund strategy, I would define asset allocation broadly. That is, to include employment as an 'earning asset' as well as real estate such as equity in a personal home. A high concentration in an employers stock in a retirement account results in compounded risk because of job exposure and perhaps risk to the value of home equity if the employer, like Enron, is a substantial presence in the area. But from the stand point of keeping it simple, the retirement account should be considered part of the overall portfolio and unless one has extraordinary competence [inside info] with regard to a holding, concentration in a single issue shouldn't exceed 10% of total assets, equity holdings should represent a cross section of industries [read mutual fund] and shorter duration assets [money market for emergency fund outside of retirement] or short term bond funds should be considered if there are near term needs. Generally the market, when it's working, prices assets based on the idea that business risk can be diversified out. So a concentration in a single issue is a bad deal from a risk return perspective...unless you have a decided edge with regard to analyzing that issue. Don't put all your eggs in one basket unless you're a stone expert on baskets generally and that basket in particular. Even then, know that you can get it wrong.