NEW YORK —
Stock picking is for fun. Asset allocation is for making money over the long haul.
The weighting you select for various asset classes is a function of such factors as your age, income, risk tolerance and retirement needs. It is what serious investors focus on.
6. Are you an active or passive investor: For the equity portion of your allocation, you must answer a crucial question: Do you buy indexes and garner market-level returns, or do you pick stocks (or sectors) and time the market in an attempt to beat the indices?
Those who try to beat the market have a tough road ahead: Each year, 80 percent of professional managers fail to beat their benchmark. Of the few who do, once you take fees and costs into consideration, less than 2 percent actually hit that bogey.
If you want to beat the market, understand the long odds that are working against you. That is why for most investors, indexing is a much better bet.
Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of "Bailout Nation" and runs a finance blog, the Big Picture. You can follow him on Twitter: @Ritholtz.