Probably the most common mistake made by employees is to allocate an equal amount of money to each of the fund choices. Studies have shown that given ten choices, employees tend to put 10% in each choice. Given five choices they put 20% in each choice. However, doing this means that if four of the choices represent one type of asset and the fifth is unique, their so-called balanced asset allocation is actually split 80/20. If the funds happen to be the other way around, then the asset allocation is 20/80.
The equal proportions methodology builds very poor portfolios. You …Read More