Asset Allocation Mix: Not Just Stocks, Bonds & Cash

July 28th, 2008  |  Published in Asset Allocation  |  Comments Off on Asset Allocation Mix: Not Just Stocks, Bonds & Cash

When it comes to asset allocation, it’s important to get the right mix of equities (stocks) and bonds but those aren’t the only two asset classes you should be aware of. The general rule of thumb, that your percentage of retirement held in stocks should be 120 minus your age and the rest in bonds, is a good start but falls short in giving you a good allocation mix because it ignores so many asset classes.

When you look at target retirement funds, you’ll see that some offer exposure to international equities and bonds, some offer a little mix of cash, and others don’t necessarily follow the 120 minus age rule in the first place.

What are some other asset classes? Consider putting a small percentage in investing in areas like real estate, or commodities, or precious metals, or even even artwork (OK, maybe not artwork). A small percentage in those areas could give you some much needed diversity given your risk profile.

Don’t just think stocks, bonds, and cash.

10 Rules: Stocks, Stocks, Stocks

December 26th, 2006  |  Published in Asset Allocation  |  Comments Off on 10 Rules: Stocks, Stocks, Stocks

The seventh tip of Forbes ten rules for building wealth deals with “proper” asset allocation and that you should be investing more in stocks and less in anything else. Their rule of thumb? 120 minus your age should equal allocation percentage in stocks and the rest should be put in bonds.

Stocks are usually more volatile than many other vanilla investments (unless you start playing in the big pool with derivatives) but the idea is that what happens the next few years won’t affect your long term plan, which will come to fruition in thirty or forty years. This is also the concept behind target retirement and lifecycle funds, to move assets away from more volatile investments like stocks as you near retirement.

Source: Fortune

10 Rules: Don’t Chase Trends

December 23rd, 2006  |  Published in Investing  |  Comments Off on 10 Rules: Don’t Chase Trends

One of things that a lot of people do, without even thinking about it, is the topic of this particular tip. Human beings have a natural herd mentality and so when there are trends, people want to be a part of it whether it’s bell-bottom pants or its investments. During the dot-com bubble that burst in 2001, money flowed into the industry like crazy. This past year, money flowed into energy and gold like crazy. When ETFs were first introduced, money jumped from mutual funds to ETFs like it was going out of style. The fifth tip of Forbes ten rules for building wealth is that smart investors should not chase trends.

The logic behind this tip is that you’re in it for the long haul and that you shouldn’t switch your long-term strategy for the next hot thing that comes along. Not only shouldn’t you make these course corrections because its not part of your grand plan (and because by the time you see it, it has already peaked), it’s also expensive to be jumping around to the hottest thing.

This is what Forbes says you should ask yourself if you do decide to jump:

Can I describe how it works in plain English? If not, start your research at Why is it so popular right now? If the answer is “Paris Hilton bought some,” best to stay away.

Source: Fortune