It is very important to have a good asset allocation in your portfolio. Your asset allocation is going to vary with your tolerance for risk. Assuming you are an aggressive investor I recommend the following:
20% Small Cap funds
20% large Cap funds
10% Bond funds
20% Global funds
30% Other Funds
When you look at this portfolio the item that sticks out is the 30% other. What is he talking about?
The 30% is what you put money into to enhance your portfolio returns. Some examples follow.
During an economic recovery small cap mutual funds outperform the general market. To obtain the best returns in your portfolio overweigh the small cap sector early in the recovery. Stock picking in small cap funds can yield to better result. You want to be in the best small cap funds available.
Precious metals funds: During times of a weakening dollar and economic uncertainty these types of funds can vastly outperform the market.
Energy funds do very well in times of rising oil and gas prices.
Emerging market funds tend to do well in times of peace and stability.
Concentrated portfolio mutual funds: In these funds a manager holds less than 30 stocks sometimes holding 30% or more in one stock. Great managers can often pull off outstanding returns. The downside is they can have terrible years as well. Often investors have a temptation to put a lot of their money in one of these types of funds. A rule of thumb is no more than 5 percent in any one of these types of funds.
Putting your money in the right fund during the right period can have a very positive impact on your returns.