Very! Asset allocation is the single most important investment decision. It is responsible for up to 90% of your portfolio’s long-term return. Asset allocation refers to how you diversify your portfolio into different non-correlated asset classes, like stocks, bonds and cash. History demonstrates that nothing comes close to matching the long-term returns of a diversified portfolio of stocks.
A single dollar invested in common stocks over the past two centuries is worth over a million USD today on an inflation-adjusted basis. Nothing else comes close to delivering this kind of return. So if you want to boost your future long-term returns, increase your stock allocation.
But check your risk appetite. Do you still feel comfortable with your over all investment portfolio when the stock market dives by 50%? If not, reduce your stock investments and go more conservative. In general, the younger and more aggressive you are, the more you should have in stocks.
Long-term investors should not think about what the market will do next.
Sven Franssen