Two kinds of allocation

When it comes to mutual fund investing, one of the problems that most of us create for ourselves is that we think that choosing a fund is the most important part. In fact, not just the most important but the part that must be done first. The entire activity of mutual fund investing gets reduced to choosing funds. Unfortunately, this sets us up for failure, and if it does get success, then that success is accidental and we don't actually know why and how we succeeded. It's just luck. This odd obsession with the irrelevant parts of investing leads us to give undue attention to the parts of our investments that can play only a small or an irrelevant role. Some months ago, I saw this funny clip from a Jerry Seinfeld comedy show that made me think of this problem in investing. Here's what Seinfeld says, "Sky-diving was definitely the scariest thing that I've ever done. Let me ask this question from the people who do sky-diving. What is the point of the helmet in sky-diving?" So, if you dive from the plane and the parachute does not open, how exactly does the helmet help? It's funny, and as far as I can think of mutual fund investing, it definitely has a parallel and tha

This article was originally published on October 09, 2021, and last updated on September 17, 2022.