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A Common-Sense Approach to Asset Allocation

Harold Evensky discusses his thoughts on effective asset allocation in Part I of a two-part conversation with the financial-planning guru.

Christine Benz, 06/11/2010

Did diversification fail during the 2008-09 bear market? Is the traditional, buy-and-hold approach to asset allocation a vestige of a bygone era?

Investors began to ask these and other important questions in the wake of the bear market, when many asset classes they had relied on for diversification moved in a single direction: down.

To get an expert perspective on these topics, we recently sat down with Harold Evensky, president of Evensky & Katz Wealth Management. Morningstar managing director Don Phillips once called Evensky "the Dean of Financial Planning," and for good reason: Evensky marries the wisdom of a topnotch practitioner with a focus on cutting-edge research.

Part I of our conversation, focusing on asset allocation, appears today, and Part II, about planning for retirement, will appear on MorningstarAdvisor.com next month. 

Following 2008, a lot of people began to feel very skeptical about the viability of long-term strategic asset allocation and suggested that perhaps a more tactical approach was in order. What's your thought on that topic?

Hope springs eternal. Everyone's always looking for the pot of gold at the end of the rainbow. The idea that it would be nice to be at the right place at the right time is not new. It didn't come with the 2008-09 crash. Every time there's a major market correction, we hear the same things.

If we're talking to a client and they say "Well, gee, so and so successfully timed the market, why can't you do it?" I'll say, "Name the top 10 artists of all time, the top 10 musicians. Or pick baseball players, anything you want." And we'll end up arguing about who should be on the list.

And then if I ask clients to name the top 10 market-timers of all time, everyone looks at me blankly. If it were possible, there would be a whole bunch of names we'd be arguing about. So my skepticism is pretty strong.

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