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Advanced · Lesson 1 of 6Asset allocation
Asset allocation is how you split money between shares, bonds, property, cash and alternatives. A widely cited 1986 study by Brinson, Hood and Beebower found that allocation policy explained over 90% of the variation in a pension fund's returns over time, far more than stock picking or timing.
Typical diversified mixes range from conservative (around 30% growth assets) to high growth (around 90%+). Australian super funds publish their mixes, and the Vestora Plan tab lets you test them.
The right mix depends on your time horizon, need for income, other assets (a secure job or pension acts like a bond) and how you will behave in a crash. A mix you can stick with beats a "better" one you abandon at the bottom.
Key takeaways
- Allocation drives most of the variation in portfolio returns.
- Your job and pension count as part of your allocation.
- The best mix is one you will hold through a crash.
Check your understanding
1. The Brinson, Hood and Beebower study found most return variation came from...
- Stock selection
- Market timing
- Asset allocation policy
- Fees
Show the answer
Asset allocation policy. Policy allocation dominated.
2. A secure public-service pension behaves most like...
- A bond holding
- A small-cap share
- Crypto
- A covered call
Show the answer
A bond holding. It provides steady, predictable income.
Go deeper
- Wikipedia: Asset allocation
- YouTube videos: asset allocation explained
- Investopedia: asset allocation
- Moneysmart (ASIC): diversification asset allocation
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