Save, save, save is a message you’ll hear me drive home on more than one occasion.
But the fact of the matter is, tucking the money away is only about half of the story. The other half involves doing everything in your power to see that all those dollars you’ve so faithfully set aside are where you want them.
Studies have shown that asset allocation is the single most important factor in achieving a successful portfolio; but there is no guarantee that asset allocation will prevent a loss in declining markets nor will it assume a profit. The key is to have a proper allocation of your portfolio, one that matches your investment objectives. While what’s “proper” may vary from one person to the next, the fundamental motto of asset allocation is the same for everyone: Diversify!
Having a diversified portfolio is a key element toward achieving your financial planning goals.
Whatever comprises your portfolio, three key factors should drive your allocation decision: your time horizon (how soon you’ll be needing to use this money), your tolerance for risk, and your financial objectives. This is why a sound financial plan is so important.
In today’s economic environment, obtaining investment information is easy; choosing the investments that are suitable for you is much more difficult. You need to identify your investment objectives, evaluate your risk tolerance, analyze your current portfolio, develop an appropriate asset allocation strategy and recognize various alternatives tailored to meet your individual needs and goals.
Your financial advisor should use sophisticated modeling tools which illustrate the future implications of different portfolio scenarios related to your financial situation, assets and cash flow needs. Then you should agree on your optimum allocation.
While all this new information may seem confusing, it’s empowering simply to be aware of the questions you should be asking your financial planner to ensure you get prudent advice. So I encourage you, keep reading, learning and saving. And remember, one of the greatest risks you can take is to do nothing at all – and miss out.