After asset allocation and rebalancing, choosing weights for each asset in the portfolio is next in line among the critical decisions that determine investment results. Once you make reasonable choices on the asset classes to hold, and how and when to rebalance those assets, your focus should turn to asset weights. But choosing weights is tricky, considerably more so compared with asset allocation or rebalancing. As a practical matter, you can use some intelligent rules of thumb for designing a portfolio that’s probably in the neighborhood of long-term optimal (the highest expected return for a given level of risk) with regards to asset allocation and rebalancing. Deciding how to weight the assets, by contrast, carries a much higher analytical burden for engineering a satisfying outcome.
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