Sean Gates

So the Quilt chart is a very common chart that shows which asset classes have done the best on a year-by-year basis, stacked over one another.

So you could look at 2024 and see that gold did very well that year, you know, up 20%, but then bonds were negative 5%.

And a well diversified portfolio is usually going to fit somewhere in the middle of that quilt chart.

And that ties back to the risk tolerance, right?

Or as an investor, do you want that sort of smooth portfolio?

return profile with less magnitude of drawdown or less volatility?

Or do you want to target some of those asset classes that can give you a juiced rate of return, but higher amount of volatility?

And then you could always tie that to your point around certain market events, certain valuations.

Maybe you're paring back the aggressive stuff when valuations get high, and you could incorporate that in your yearly rebalancing or semi-annual rebalancing conversation.

Yeah.

And I think that's important because especially from a Foolish philosophy perspective, you can almost rob yourself of this concept of asset allocation because a lot of Foolish investors are

diving into individual stocks.

So I know several folks that I've run into who have upwards of 50% of their portfolio in a single stock, right?

I know some people who have 100% in Apple and they've had that for a decade and that's served them very well.

And so you have to kind of attune what does rebalancing mean for that person?

Because if you looked at a quilt chart for Apple, it's like, how do you proxy that against broad asset classes?

And so it's just a really interesting conversation on how you evolve your rebalancing process.

I would say it's a little bit of both.

I would say the most important thing is, are you achieving the rate of return for the level of volatility that you're comfortable with towards your goal achievement?

That's going to be the most important thing and should be the North Star for most people.