Do not scoff at an Overall Rate of Return of 8% p.a. of your TOTAL portfolio

Asset allocation is the next most important factor, after asset selection, in determining the overall rate of return of your total portfolio.

Here are some illustrations to bring home this important fact.

Asset Allocation and Overall Rate of Portfolio Return (Equity Growth Rate  of    8%)

http://spreadsheets.google.com/ccc?
key=0AuRRzs61sKqRdG84THBQNUI3TTNjVmVzU1VGRTVMbWc&hl=en

Asset Allocation and Overall Rate of Portfolio Return (Equity Growth Rate of 10%)

http://spreadsheets.google.com/ccc?key=0AuRRzs61sKqRdGUtTlNFSk9QeTFIRnBVODF6ODFjVkE&hl=en&authkey=CLPrn-EG

Asset Allocation and Overall Rate of Portfolio Return (Equity Growth Rate of 15%)

http://spreadsheets.google.com/ccc?key=0AuRRzs61sKqRdGs3ZDgyWWNDMExCZ2tzWl9KelY5UXc&hl=en&authkey=COepn84K

Asset Allocation and Overall Rate of Portfolio Return (Equity Growth Rate of  20%)
http://spreadsheets.google.com/ccc?key=0AuRRzs61sKqRdE9yeVRvSzRrMzM5djc0MHA0cERLbXc&hl=en

Asset Allocation and Overall Rate of Portfolio Return  (Equity  Growth  Rate of    -10%)

http://spreadsheets.google.com/ccc?key=0AuRRzs61sKqRdGV1UGNuS1BPMF9VcTNXcnE0aHI3OXc&hl=en&authkey=CP7FzmA

It is common enough to hear of 'investors' and 'speculators' achieving high rate of return on their equity/equities.  An equity portion may give a return of >15% or >50% p.a., but this may only translate into a small overall return to the total portfolio if the percentage of equity is a small portion of the total portfolio.

Therefore, do not scoff at the investor who is able to grow his/her total portfolio at an overall rate of return of 8% or more p.a.  It is no mean feat indeed.  Just study the spreadsheets to gauge what is required to achieve this.

On occasions, there are those who are 100% in cash.  This doesn't make sense, as the risk of being in 100% cash compared to being 80% cash: 20% equity is almost the same and moreover, the later has a greater probability of a higher return compared to the former.