In a recent Bloomberg article, columnist Barry Ritholtz ranks those factors that he believes drive investment portfolio returns.

“An unexpected challenge in performing this exercise,” writes Ritholtz, is a tendency for some elements to offset others.” Ritholtz identifies eight “broad elements that typically determine the total return of any portfolio,” in descending order of importance (i.e. factors later in the list could potentially offset those listed earlier):

1. Security selection: “No doubt,” writes Ritholtz, “better stock pickers will see commensurate portfolio gains. But that is merely one element of many, and not surprisingly, subject to other factors.”
2. Costs and expenses: “The overall cost of a portfolio, compounded over 20 or 30 years, can add up to (or subtract) a substantial amount of returns.”
3. Asset allocation: Ritholtz says research shows that “allocation is much more important to returns than stock selection.”
4. Valuation and year of birth: For the long-term investor, Ritholtz writes, “valuations are less about expected returns of pricey stocks, and more about when they; 1) start investing and, b) start to withdraw in retirement.”
5. Longevity and starting early: “The sooner you begin, the longer compounding can work its magic.”
6. Humility and learning: Everyone makes mistakes (Ritholtz cites Warren Buffett and Jack Bogle as examples). “The key question is how quickly you can figure out all the things you are doing wrong. Self-awareness and ego is a significant thread in this context.”
7. Behavior and discipline: “Investors continue to be their own worst enemies when it comes to investment performance. On average, their actions lower their returns significantly, but in the worst cases they demolish them.”
8. Luck and random chance: “We often cannot tell the difference between skill and luck in stock selection. And the moment when each realize this can also be somewhat random.”