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20. Risky Business > Dynamic Asset Allocation

Dynamic Asset Allocation

“Every gambler knows that the secret to surviving is knowing what to throw away and knowing what to keep.”

—Kenny Rogers

As a risk-averse money manager, I use and advocate a dynamic, active asset allocation process. For my portfolios, diversification is accomplished through a four-dimensional strategic allocation process.

The first diversification dimension is position allocation. Position allocation is the most basic form of portfolio allocation—diversifying between different issuers. The most important part of position allocation is position sizing. An investor can “put all his eggs in one basket” or diversify into a multiple of individual issues. Position size should be determined on a percentage of one’s capital basis.


  

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