The Wall Street Journal says that asset allocation has “failed miserably” as an investment strategy. That is like saying democracy is a failed political system because it allowed the severe recession to happen. The problem with the WSJ analysis is that neither asset allocation nor democracy is a perfect system. Far from it; but the real measure of success of either is evaluated over the long-term not on a single year. In addition, no one has come up with an alternative strategy that has stood the test of time.
What I have seen from many new clients whose portfolios were managed by large brokers was no asset allocation strategy but just a random collection of stuff that the brokerage houses were trying to push on their clients. For clients who did have a semblance of an asset allocation strategy their broker had not explicitly explained the downside risk of their investment portfolio.
Here are two questions that you should always ask your advisor:
* What is my potential percentage loss on this portfolio (1%) chance?
* What is my potential dollar loss on this portfolio (1%) chance?
If she can’t answer those questions then you should find another advisor.