Market cycles
 Another
reason why asset allocation is important to managing risk
and return is because different asset classes typically
react differently to changing economic conditions. For
example, a growing economy may produce strong stock returns
but may cause bond returns to slump, and vice versa. On
the other hand, when interest rates are on the rise, bonds
may outperform stocks for a period of time.
By spreading your investments across different asset classes,
you may be able to limit, or offset, potential losses in
one asset class with stable values, or even gains, in another. |
Professor
Roger