Alright, folks, this week we are going to get into the nitty gritty of determining and creating the right asset allocation for you. Let’s start by building a foundation of understanding of what asset allocation and its buddies, diversification, and rebalancing are.
Asset Allocation: In a nutshell, asset allocation is cutting your portfolio into slices, each representing a different asset class.
Diversification: Diversification is cutting the slices into slices and allocating different types of holdings within each asset class.
Rebalancing: And rebalancing is putting the money your portfolio earns back into the portfolio so it keeps earning you more without letting one of the slices of the pie to get larger or smaller than you need it to for your long-term financial plan.
With that understanding under our belts, we are going to create a list of things to gather that will assist us in determining your personal investment allocation. I’m going to break them into two sub-lists. They are Risk Tolerance and Time Horizon.
- Make a brain dump of all your questions and concerns about your retirement and investing.
- List all your retirement needs and wants (for needs, think healthcare and things like that; for wants, these are wishlist items like, “I want to be able to eat out twice a week”).
- Your birthday and your spouse's birthday
- Your current employment status and salary
- Your state income tax rate
- If you have family members you want to gift money to in retirement, include their names and guesstimate amount. An example is helping with grandchildren’s college expenses.
- Add in your retirement hobby and travel plans as well as any other goals that will cost money and assign them monetary values.
- What is your expected retirement age, and how many years do you expect to be in retirement? (Think about the longevity of your parents and grandparents when putting these numbers down.)
Save that list because we are going to add a new item next week, Retirement Budget!
Until next time…
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly.
All investing involves risk, including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Dollar-cost averaging involves continuous investment in securities regardless of fluctuation in the price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.