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Holding the Right Mix of Stocks

Aaron Levitt Nov 12, 2017

When it comes to investing, we tend to think of what investments we hold as the key to our success – a great dividend stock here, a fantastic bond mutual fund there. But what really matters is how we hold all of the things in concert with each other.

Nothing is as important as asset allocation. In fact, determining the right amount of stocks, bonds, cash and other asset classes has more to do with your overall returns than individual security selection. Getting allocation right is absolutely critical.

But according to investment manager T. Rowe Price, we might want to think about just how much equity exposure we have. The balancing act is getting harder.

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Great Long-Term With Some Hiccups

Equities remain the number one way to generate returns from a portfolio. And over the long haul, they’ve continued to drive this point home. According to Morningstar data, from 1928 – the year before the Wall Street crash – through 2016, stocks have managed to produce an 11.7% annual return. That’s about double the return of bonds and substantially more than the performance of cash over that time. Looking at rolling 20-year periods, stocks have outperformed fixed income and cash in all but one such period since the mid-1920s.

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