What is the Brinson study?

What is the Brinson study?

The 1986 Brinson study represents a time-series analysis of the effect of asset allocation on performance. The methodology compared the performance of a policy, or long-term, asset allocation represented by appropriate market indexes with the actual performance of a portfolio over time.

Who is Roger Ibbotson?

Ibbotson (born May 27, 1943) is Professor Emeritus in Practice of Finance at the Yale School of Management. He is also chairman of Zebra Capital Management LLC. He has written extensively on capital market returns, cost of capital, and international investment.

Does asset allocation explain 40 90?

In summary, our analysis shows that asset allocation explains about 90 percent of the variability of a fund’s returns over time but explains only about 40 percent of the variation of returns among funds.

What do you mean by asset allocation?

Asset allocation involves dividing your investments among different assets, such as stocks, bonds, and cash. The asset allocation decision is a personal one. The allocation that works best for you changes at different times in your life, depending on how long you have to invest and your ability to tolerate risk.

What time is the horizon?

A time horizon is your investing timeline, or how long you plan to hold an asset before selling it. Time horizon can also be your timeframe for achieving a financial goal, such as retirement.

What percentage of returns come from asset allocation?

The specific claims vary, but financial professionals generally assert that asset allocation is the most important determinant of returns, accounting for more than 90 percent of performance. This assertion stems from studies by Brinson et al.

Why is asset allocation important?

The Importance of Asset Allocation Asset allocation helps investors reduce risk through diversification. Historically, the returns of stocks, bonds, and cash haven’t moved in unison. Market conditions that lead to one asset class outperforming during a given timeframe might cause another to underperform.

Why is asset allocation so important?

How do you allocate assets?

Asset allocation means spreading your investments across various asset classes….Key Takeaways

1. Your ideal asset allocation is the mix of investments, from most aggressive to safest, that will earn the total return over time that you need.
2. The mix includes stocks, bonds, and cash or money market securities.

How do you read the time horizon?

Understanding Investment Time Horizons Investments are generally broken down into two main categories: stocks (riskier) and bonds (less risky). The longer the time horizon, the more aggressive, or riskier, a portfolio an investor can build.