Achieving higher returns is easier than you think.
All you need is the right portfolio structure.
There's no question that having the right stock picks is important, which is why we talk about those frequently – but that's only part of the proverbial equation.
I expect to hear from a lot of surprised readers because I've got a sneaking suspicion that most investors haven't paid much attention to this, and even less about what it means for their money.
Folks who blindly leap from stock to stock, for example, are in for a rude awakening – even if they're investing in the big winners like Amazon.com Inc. (Nasdaq: AMZN), Alphabet Inc. (Nasdaq: GOOGL), Apple Inc. (Nasdaq: AAPL), or Raytheon Co. (NYSE: RTN), that we've covered together.
That's because the risk associated with their money changes.
Sadly, most folks are completely blind to the potential, so they leave a lot of money on the table that could be – rather bluntly – in their pockets. Heck, in your pockets.
As always, I've got a recommendation for you that makes an ideal cornerstone investment for any investor interested in both the truth and higher returns.
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Why Stock Selection Isn't Enough
Like many investors, I grew up thinking that individual stocks were the way to go. Certainly, everything I read as a young man coming into finance – Forbes, Money Magazine, and Kiplinger's, just to name a few – reinforced that notion.
Then I arrived at Wilshire Associates in the late 1980s with a newly minted diploma in my hands and quickly learned how money really works.
My boss, a hyper-focused and brilliant guy named Larry Davanzo, told me in no uncertain terms that portfolio structure was something I'd better come to understand if I wanted to be successful – and with billions on the line, he wasn't kidding. So I spent hours in my cubicle, burning all kinds of midnight oil – and plenty of weekends, too.
Like many professionals at the time, I focused much of my attention on a 1986 study by Gary Brinson, L. Randolph Hood, and Gilbert Beebower, called "Determinants of Portfolio Performance." It examined quarterly returns from 91 pension plans from 1974 to 1983 and concluded that asset allocation accounted for 93.6% of the volatility of quarterly returns.
The implication was huge: If performance comes primarily from asset allocation, then why bother with actively managed stocks and portfolio management?
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It was the start of a badly flawed (and disproven) line of thinking that's still embodied today in the concept of passively managed portfolios advocated by well-known, well-intentioned people like Jack Bogle and Burton Malkiel – but that's a story for another time.
Something didn't sit well with me, and it took me years to put my finger on it, not to mention do the math to prove it.
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean, and he's also the founding editor of Straight Line Profits, a service devoted to revealing the "dark side" of Wall Street... In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.