Asset Allocation

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Deleted user

Obviously, a person's individual asset allocation is going to be based, simplistically, on his/her own situation, goals, and risk tolerance. But in general, what are some specific things you take into consideration when determining your asset allocation?

M

Micky H.

I find this a most difficult question to answer as it is very fluid. But here are elements that I consider.

Not retired (I want my cash/TIPS to cover 6 months of expenses **)
Retired (I want my cash/TIPS position to cover 2-3 years of expenses **)
** Expenses will fluctuate with time. For example, kids moved out or mortgage is paid off.

Asset Correlation (Diversification) is another item I consider. I specifically write it as such because diversification minimizes risk but only if correctly utilized. To better explain below are some statements:

  1. While going into multiple company stocks is better than going all in on one stock it's not true diversification as the entire stock market went down with COVID.
  2. Bonds are debt instruments and not all of the go up when stocks go down. For example corporate bonds went down with the stock market.
  3. Although it will not be happening anytime soon. There is no guarantee that the U.S. dollar will remain the world's reserve currency.

Hence it is important to have a diversified asset correlation over any other kind of diversification in my opinion.

There are plenty more, but those are the only ones that I can easily state I consider without going into my situation, goals, and risk tolerance which would dictate the percentages I have in various assets.

D

Daniel R.

The most important thing is tracking your assets. know where they are at all times.

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