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
- 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
- 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
- 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
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
Brunetti RiskAlyze Risk Assessment Calculator
Thank you for listening!