This is a true story.
It’s time to test your knowledge on the importance of asset allocation!
A new client came to me because she wanted to do some retirement planning. She already had an investment advisor, but she wanted me to review her portfolio. In less than 30 seconds, I determined several things that you can now determine as well. First, I looked at her main asset classes. How much did she have in stocks, bonds, cash, and real estate? Turns out, she was 98% in stocks. Okay, that tells you something. Then, I looked at the sub-asset class within stocks – looking at how much was in U.S. stocks, developed stocks, and emerging market stocks. Turns out, she had about 20% in U.S. stocks and 80% in emerging market stocks. Okay, that tells you something more. Then I looked at if she’s invested in large or small companies. Turns out, she had about 50% of her portfolio in small stocks. Then I looked at what industries she was invested in. Turns out, she had about 60% of her portfolio in technology stocks.
Based on what you know, do you think someone retiring who needs some income and stability should have 98% in stocks?
How about half of her portfolio in small stocks in emerging markets and the majority in just one industry?
She was shocked. She didn’t realize what she owned or the risk she was taking. But if she had been money smart, she easily could have seen this for herself.
Even if you don’t want to make the investment decisions yourself, the information you are learning here will help you understand much more and will help you work better with your advisors.
The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.
About the Independent Financial Advisor
Robert Pagliarini, PhD, CFP®, EA has helped clients across the United States manage, grow, and preserve their wealth for the past 25 years. His goal is to provide comprehensive financial, investment, and tax advice in a way that was honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a real fiduciary. In his spare time, he writes personal finance books, finance articles for Forbes and develops email and video financial courses to help educate others. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.
