- Why Dimensional
Structure, or asset mix, determines most of the performance in a diversified portfolio. Investors choose asset classes to play different roles in a portfolio, and their appetite for risk guides their asset allocation.
Capital markets are composed of many classes of securities, including stocks and bonds, both domestic and international. A group of securities with shared economic traits is commonly referred to as an asset class. There are several asset classes, all with average price movements that are distinct from one another. Investors can benefit by combining the different asset classes in a structured portfolio.
A full range of domestic, international, and emerging market asset classes includes small, large, value, and growth stocks; government, corporate, and municipal bonds; real estate; and commodities. Because the asset classes play different roles in a portfolio, the whole is often greater than the sum of its parts. Investors have the ability to achieve greater expected returns with less price fluctuation and more consistency than they would in a less comprehensive approach.
However, because no two investors are alike, there is no single "optimal" asset allocation. Each investor has his or her own risk tolerances, goals, and life circumstances that dictate the holdings in their portfolios. You should consult your financial advisor or plan administrator to help you determine an appropriate mix. In general, the greater the proportion of stocks a portfolio holds, especially small cap and value stocks, the more "aggressive" is its risk and the greater is its expected return.