Asset allocation funds work great in hindsight—but they’re far less effective at forecasting the future.

Traditionally, asset-allocation funds adjust their portfolio weightings between stocks, bonds and cash in order to capitalize on perceived shorter-term investment opportunities in any one of those classes. For example, if the managers feel that the bond market is depressed and poised for an upswing, then they may overweight the portfolio in fixed income for a few months.

Here’s why we don’t recommend asset allocation funds for successful investors:

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Asset allocation funds are overrated as a way to increase your investment returns

Asset allocation funds are funds whose managers believe they can improve returns and/or reduce risk by switching back and forth among stocks, bonds and cash equivalents, often using a so-called “black box”—a computer program that makes trading decisions based on a pre-selected set of rules for interpreting financial statistics.

We think asset allocation is overrated as an investment tool. Asset-allocation strategies rose to prominence because the investment industry seized on some academic research on the subject and turned it into a sales pitch for investment products that carry much higher fees than regular stocks and bonds.

Asset allocation funds are like hindsight—they work great when applied to the past, since their creators can tweak the rules to match what actually happened. Asset allocation funds are far less effective at forecasting the future. However, asset allocation funds are always great at jacking up a fund’s expenses, because of the commissions their trading generates. The MER (management expense ratio) that such funds charge can hurt your returns.

Asset allocation funds aim for short-term gains rather than long-term growth

All in all, asset allocation fund managers try to outperform the market by betting on relatively short-term trends, rather than putting their investors in a position to profit from long-term economic growth. In any one year, the top fund is often run by a market timer who is having his or her proverbial “day in the sun.” However, in any one decade, the top funds are run by conservative managers who focus on long-term growth in the economy.

Asset allocation funds are just one type of fund we think you should weed out of your portfolio

First, eliminate anything with “asset allocation” in the name. Then, eliminate anything with “balanced” in the name. Funds that have those terms in their name own stocks and bonds. Investing in a bond mutual fund exposes you to the risk of rising interest rates. Bonds are unlikely to perform as well in the next few years as they have in the past, if only because interest rates may hold steady or, more likely, rise. That means bond mutual funds would only earn interest income on their bonds; instead of capital gains, their bond holdings could generate capital losses.

Finally, eliminate trendy theme funds where the theme is plucked from today’s headlines. Trendy theme funds are funds that focus on investments in “hot” areas such as cryptocurrencies and so on. These funds often suffer from pseudo-diversification. That is, they have lots of different stocks in their portfolios, but these stocks all respond to the same economic factors.

Use our long-term Successful Investor approach to pick high-quality stocks rather than investing in asset allocation funds

Instead of asset allocation funds, we continue to recommend that you invest in well-established, high-quality dividend-paying stocks, like those we recommend in our newsletters, including our flagship publication, The Successful Investor.

Moreover, you can eliminate market-timing risk by spreading your money out across most, if not all, of the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities). This way, you avoid overloading yourself with stocks that are about to slump simply because of industry conditions or changes in investor opinion.

You also increase your chances of stumbling upon a market superstar — a stock that does two to three (or more) times better than the market average.

Asset allocation makes sense in theory. What would prompt you to follow this line of investing?