Asset allocation.

Finance experts generally agree that for most investors, the most important factor to consider in their investment strategy is not the latest earning reports, or whether or not a particular drug is going to pass its FDA trials, but rather the basic question of in which broad categories they should invest their money.

If you’re lucky enough to find the next Warren Buffett and invest in his company (a great financial tragedy in my own life is that a friend advised me to invest in Berkshire Hathaway in 1989…and I failed to do so), then great.  But the key word is “luck.”  How many investors have been dubbed “the next Warren Buffett” over the years, only to fall from favor.

Back when I was just coming out of school, the PBHG growth funds were considered the tops in the land…in less than a decade, they had changed their name and paid back $120 million to investors after a market-timing scandal.

And I won’t even get into the madness of trying to do your own stockpicking on a part-time basis.

The bottom line?  Figure out which broad categories to invest in, and then get out of the way.  The most important asset classes you should invest in are equities (stocks) and fixed-income (bonds).  Within equities, you should also diversify your holdings between domestic and international.  My personal foolproof allocation is 40% domestic equities, 40% international, and 10% fixed income, and 10% other (which gives me a little money to play with for my own enjoyment).

For the really ambitious, you can think about allocating between all the boxes on Morningstar’s stylebox (large/mid/small X value/blend/growth), but in my experience, the more you mess around, the less likely you’ll stick with your program.  Sure, you’ll sound pretty boring at cocktail parties, but you’ll be (silently) laughing all the way to the bank.