Asset Allocation:
                 Your Best Move In Any Investment Climate
          
          
               Perhaps it's only human, but when the investment
          markets teeter, people want to do something.  This fear
          of the unknown has given rise to elaborate timing
          techniques promoted as the panacea for market
          volatility.
               This reactivity may ease one's nerves, but history
          reveals a dismal track record for market timing.  It is
          doomed to fail because it ignores these truths:
               1.  Reactive investing is always a day late.
               2.  Asset groups behave cyclically.
               3.  There's more safety in diversity.
               Asset allocation, a relatively new investment
          approach gaining favor among institutional investors
          and professional money managers, has proven its
          superiority to timing and prediction.  More recently,
          individuals have started implementing it in their own
          portfolios.
               It involves diversifying assets among several
          investment groups in order to maximize returns while
          minimizing risk.  It is the only scientific strategy
          that blends portfolio diversification, long-term trends
          and the specific level of risk you want to assume into
          a personalized investment plan.
          
          Risk and return
          
               Asset allocation starts with your needs as
          identified in your financial goals and anticipated
          money requirements through each major stage of your
          life.  The risk level you are willing to assume is
          integral to forming this plan, and the principles of
          risk and return guide your decisions.  Remember that in
          the risk-reward spectrum, there is no free lunch.  A
          higher targeted return means assuming a higher level of
          uncertainty.
               You achieve an "efficient" portfolio by striking
          an optimal mix between return and risk.  In other
          words, you try to meet your goals without assuming more
          risk than necessary.  Different combinations of
          investments will produce varying degrees of risk and
          overall return.
               Asset groups do not behave the same way at the
          same time, and asset allocation diversifies money
          across a broad spectrum of investment groups to
          capitalize on this countercyclical behavior.  It
          incorporates performance histories into computer
          programs to develop a portfolio compatible with your
          risk-return profile.  The resulting plan should tell
          you how much money to invest in each asset category and
          the likelihood of achieving the stated investment goal.
          
          A new perspective
          
               Asset allocation takes portfolio diversification
          to a new level of sophistication.  It is designed to do
          more than simply spread risk.  It also takes into
          account the synergy achieved over time by efficiently
          mixing assets in weighted amounts.
               And what does all this do for you?  For one, it
          changes your investment perspective.  When stocks fall,
          oil prices drop, or gold skyrockets, you don't feel the
          urge to do something.  (In fact, you may not do
          anything at all.)  Because your asset allocation model
          has already accounted for this volatility, you don't
          worry about it.
               This disciplined, systematic approach to investing
          protects you from impulsiveness while providing enough
          flexibility to capitalize on opportunities unveiled
          throughout the cycle.  While other investors are
          purging their portfolios based on yesterday's events,
          you are fine-tuning yours in anticipation of future
          trends.
               Asset allocation is probably the most personal
          investment approach because it takes shape from your
          attitudes regarding risk and wealth.  Furthermore, it
          changes with your changing needs.  As you move through
          different financial stages of life, you adjust the
          portfolio accordingly.
          
          A solution for the '90s?
          
               Some analysts frequently speak of "the uncertain
          financial markets of the '90s" as if past decades were
          full of certainty.  Where was the "certainty" in World
          War II, Korea, the Cuban Missile Crisis or the Arab Oil
          Embargo?
               Only the past is in clear view.  Asset allocation
          relies on the notion that long-term trends are more
          easily recognized than short-term fluctuations.  A
          mountain of information is available to plot the
          behavior of stocks, bonds, international securities,
          precious metals, oil and gas, real estate and other
          major asset groups in varying economic conditions.  A
          financial advisor can use it to apply allocation
          strategies to your portfolio.  Mutual funds can also
          play a vital role in this process, as you can combine
          them to achieve the desired effect.  There are even
          asset allocation funds.
               Asset allocation provides a balanced, rational
          approach to building long-term wealth.  If implemented
          with discipline, it can bring order to a permanently
          uncertain investment environment.
               In the next chapter we talk about mutual funds,
          and about an asset allocation service that uses mutual
          funds as part of its program.