Asset Allocation: More than just a Bucket of Stuff

Financial success comes with investing with a purpose

What is asset allocation?  If you consult (as most people do) a broker, online calculator, or the toll free number of your favorite discount broker, the answer will be some percentage of stocks and bonds.  After all, most people consider stocks and bonds as the entire universe of assets (more on that in a future blog).  They will come to your allocation by combining some computer magic with the answers to as little as three simple questions:

  • How old are you?
  • What is your risk tolerance?
  • When do you need the assets?

 

Not a very custom approach, is it?  To make matters worse, if you consult ten different sources you will most likely get ten different answers.

Once you have your allocation you can then somehow select a group of mutual funds to fill out the portfolio.  What you’re left with is a “bucket of stuff” that you hope grows in value each time you look at your statement yet has no defined purpose.  This is the conventional wisdom.  I hate conventional wisdom.

One of the problems with this methodology (and there are many) is that it is developed by the very people that are trying to sell you their bucket of stuff.  The big financial firms, through their advertising, implore us to take control of our assets so that we can meet our financial goals.

How do we know if it will meet our goals? Since most of us haven’t done a comprehensive financial plan we have nothing to measure our investment performance against.  We have no way of knowing if our bucket will serve our purposes until perhaps it’s too late.

So what is the purpose of your bucket of stuff?  In our plans we need income to pay the bills and live the retirement we imagine, liquidity for those unexpected items and to “smooth out” month to month needs, and growth to protect the purchasing power of our income and liquidity from inflation.  Even if you are not ready for retirement your plan will still have a purpose for your funds.

If you start this process with a sound financial plan, as we have discussed previously, you will know what purpose your assets need to achieve.  Only then can we create a portfolio using assets that are designed specifically to accomplish each individual purpose.

Asset allocation with a purpose will better enable your assets to work for you instead of just sitting in a bucket of stuff.

Are your assets working for your purpose or just in a bucket of stuff?  Call us today at (732) 875-0100 for a no-obligation portfolio and financial plan review.

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David J. Seibel is founder and Managing Partner of AGS Aurora Financial Services LLC (www.agsaurora.com), an independent financial advisory firm in Matawan, New Jersey. You may contact him by email at david.seibel@agsaurora.com.

Investment Advisory Services offered through Global Financial Private Capital, LLC a SEC Registered Investment Advisor