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Listen to Johnson Brunetti's Money Wisdom with Joel Johnson CFP®, host of Better Money Television program and Forbes Contributor. Gain true financial wisdom and advice aimed at educating you about all of your financial options when it comes to retirement so you can make the best decisions for you and your family. Get information and education that can bring you peace of mind with your savings and retirement. Whether it’s your 401k account, IRA, or an underperforming asset, Joel Johnson can answer your questions and make you more aware of issues that may affect you.

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Mar 23, 2018

Learn and understand that asset allocation is the mix of your entire investment portfolio. Here, I discuss seven pitfalls of having an asset allocation strategy that just doesn't work. The wrong allocation could cause you to decimate your life savings or force you to dial back your lifestyle.

Main Questions Asked:

  • What exactly is investment allocation?
  • What are the risks?
  • How much should be allocated to certain areas?

Key Lessons Learned:

The Seven Pitfalls of Asset Allocation That Could Decimate Your Entire Life Savings

  • Your asset allocation for your investments doesn't match your tolerance for risk. If your risk doesn't match your portfolio, you could lose a significant portion of your savings. It's always about risk. Your allocation begins with your tolerance for risk.
  • You think you have a diversified portfolio, but you don't. Sophisticated investors called this overlap in your portfolio. This means you think your diversified just because you own different funds. If you dig in, different fund families have a lot of overlap with similar stocks. Have a diversified portfolio. Be careful about having different advisers.
  • Not consistently updating your plan. This isn't a set and forget situation. You need to have an adviser that's constantly checking to see if your portfolio needs rebalancing. They also need to be meeting with you and making sure they understand any changes in your life, and you understand what's going on with your investments.
  • Letting your emotions get the best of you. You need to think about asset allocation that's going to keep you invested over the long term. Removing your emotions is probably the best thing you can do.
  • Not using Social Security as a tool to battle risk. Social Security is an asset. We can't decide how Social Security is invested, but we need to think of it as an asset or another account. Things like when we time the benefits need to be part of our asset allocation strategy.
  • Not having income sources outside of your investment portfolio. Even if you have income sources outside of your Investments, you need to have enough income. With a retirement analysis, you can find out if you are in good shape to retire or if you should keep working.
  • Choosing Investments or mutual funds based on past performance. Past performance is no guarantee of future performance. Way too many people are looking at a stock's performance and assuming that it will go on forever. Don't choose your Investments based on past performance.

Links To Resources Mentioned

Money Map Retirement Review


Age and risk tolerance key to mastering asset allocation

The Importance of Asset Allocation

Default Investments: Understanding Performance Differences

Johnson Brunetti RiskAlyze Risk Assessment Calculator

Thank you for listening!