What’s Your Asset Allocation

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Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor’s risk tolerance, goals and investment time frame.

You will often be told to have a portion in Stocks, a portion in Bonds and a portion in Cash or cash equivalents. You will be told this but not really provided any further detail in the types. There are different types of bonds, seven different types actually.

1.) Treasury bonds;
2.) other U.S. government bonds;
3.) investment-grade corporate bonds (high quality);
4.) high-yield corporate bonds (low quality), also known as junk bonds;
5.) foreign bonds;
6.) mortgage-backed bonds; and
7.)municipal bonds.

There are also different types of stocks as well as stock categories.

Types of stocks are:

1.) Common stock. This is well, the stock you buy.                                                                       2.) Preferred stock. This is stock you get while in or a part of a certain company, however, this stock usually doesn’t come with voting rights. Honestly, voting rights doesn’t play much of a part unless you own a fair share of the company you hold stock in.

Stock categories are mainly divided out by size and sector. By size, you will generally hear them referred to as either: Small Cap, Mid-Cap and Large Cap. Large Cap is your more stable companies in the billions of dollars worth of value or trillion as it were for say Amazon at this time. These, again are more stable companies and many but certainly not all, pay our dividends which at times make up for it lack in growth as the latter is the case for Small Cap companies. Small Cap companies are newer companies or companies still early on in their life cycle, at times the end so be sure to understand the value of that company.

Moreso than size, you need to know the category of sectors than you do say the size of the company, however, both are important.

The categories are as follows:

  1. Financials
  2. Utilities
  3. Consumer Discretionaries
  4. Consumer Staples
  5. Energy
  6. Healthcare
  7. Industrials
  8. Technologies
  9. Telecom
  10. Materials
  11. Real Estate

Each category has is benefits and uses within a portfolio. You may utilize only a few inside your own portfolio, or you may utilize them all.

A portfolio is very, very personal. Can you read the seriousness of my voice? Well, it sounded serious in my head. Take it as you will, however, it’s not only personal, it’s strategic as well.

You may hear a very generic saying of having your money in Stocks and Bond. There is a basic computation for how much you should have too. Did you know that? (I don’t agree with it but I will share it with you.) The way most financial gurus advise you on how much stocks versus bonds you should have is based on your age. Weird right? They say to take 100 years and minus your age. So let’s say you are 50 years old right now, they would tell you to subtract 50 from 100 and of course your left with 50. this means you should have 50% of your portfolio in Stocks and 50% in BONDS. Same applies if you are 40 years old. Utilizing the same mathematical principal 60% of your portfolio should be in Stocks and 40% should be in Bonds. There are numerous variations of these Stocks versus Bonds concept. Honestly, I have multiple setups account depending, goal depending and I change it up based off of need and or opportunity.

I would like to provide you with a few portfolio setups. Some go against conventional thinking and some fall in line with it. It may test your feelings on Stocks and Bonds. Hint, Bonds aren’t always safe either.


Consistency & the Law of Averages


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I have been getting a great deal of push back over investment strategies, over what the best way and how to invest money is. While I dont claim to know any ins and outs of buying the dips or worse betting against companies, nor do I have success at buying on the cheap and selling high as a day trader. I just don’t have that skill. Although at times I wish I did.

The arguments are stemming from building and making wealth. How to do it and the reasons for the differences. The best answer I can give stems from the law of averages. Your average Joe/Jane may understand the concepts of buying low and selling high, but doing it, are two very different things. Your average Joe/Jane may read the how to day trade dummy books, and likely are not any better for it. Your average Joe/Jane will lose more times then they gain, often depleting any gains or even possibly placing them in the red. Your average Joe/Jane may buy “classes” or buy into millionaire traders groups and likely just end up with what is known as a stupid tax. Honestly, if people were making millions upon millions, do you really believe they would be ‘teaching’ people!?  You will never get something for nothing. But let’s say you are more than capable, to choose the best stocks that are going to be long term performers. In a wealth article written this year by  Nick Maggiulli if you were able to buy the best lows of all time, you still would only have a 30% chance of beating the consistent average investor. He also goes on to show that if you miss the lowest of the lows by as little as two months, only two months; your 30% chance drops to just 3%.

Let’s take this on a different perspective. Let’s say, that you get a small windfall of $10,000 and lets just assume an average return of the market at 10% (buy S&P Index) and let’s assume your 20 years old. You place it into a retirement account until you reach 65 years of age. You will have $876,240. Not a bad return. Of course, it is a long period of time which is what makes the difference with compounding. Now the average 20 year old won’t put away $10,000. That money is going to burn a hole in their pocket faster than a bad burrito shoots from your colon. But hey, this is just an example.

Now, what if we looked at a consistent investor, who buys in all markets, up or down, doesn’t matter. The highs the lows and keeps putting their investment into the index fund. Let’s say from age 20 to age 65 as our example before. And they only put in $100 per month. That it. That’s a cup of coffee per day at Starbucks. Based on the same 10% average return, the Joe/Jane would have ended up with $1,048,150. ?yes they would have invest more of their own money over a very long period of time, however, their chances of a better return more than doubled during the down years whereas if the first investor gambled on only a few stocks could have lost a great deal of money.

Don’t get me wrong, investing from a lump sum is a great way to leave a legacy for children and grandchildren. See our earlier post on leaving a legacy. But for the average Joe/Jane, it’s better to start early and contribute small amounts over a long span of time.  Build wealth consistently over a long period of time is far more advantageous than gambling with stock picks. Even those that say they know, have no clue.

Leaving a Legacy


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I have been thinking deeply about leaving a legacy when my ‘time’ comes. Not that I am sickly or anything. I am still young(ish) after all. Having a new small child will inherently cause you to think about such a subject.

While I am focused on my career and working on financial goals, I began thinking about my young child and my teenager.

With what I have learned about wealth building, is that having cash on hand, or making boat loads of money with a high salary, isnt what builds wealth. Time, is the greatest factor. Time, is the best friend of investing. Time is the greatest gift.  They say that making faithful investments, on regular intervals without breaking stride and being blessed with long life, is all you need. Let me give you an example:

Say you never make a large salary. You work in a career that you love and you make just enough to live a comfortable life. This could be making $29,000 a year or even less. Let us assume you began this job when you were 20 years old and you never got an increase in pay. You got paid every two weeks, which seems to be the standard. Lets just assume as well, you invest into an S&P 500 Market Index fund adding$50 every paycheck, no more, no less. You simply ride the market putting in that $50 every paycheck. The S&P 500 averages 10% since its inception, but for argumentative sake, lets assume a 9.5% return. When ready to retire at 65 years old, you have $1,160,853.00

Let’s say now that we as parents start making our children work around the house and pay them for their chores. Not just developing them as little humans, but teaching them the value of money, teaching them to use money as a tool and not simply living paycheck to paycheck. We pay them enough let’s say we match them dollar for dollar and we invest on their behalf the same $50 every paycheck starting when they can do real chores around the house, lets say age 7. (Im not a monster.) So giving them just an extra 13 years ahead of my first example would provide them a retirement portfolio valued at roughly 4.8 Million!

I’ll go one step further here. What if we started a retirement account for our newborn. And we as parents placed in the same $50 every check for them. Let’s also assume that as they aged, they continued to put away their $50 every check after they became adults and we no longer contributed. They will have roughly 8 Million dollars when they retire.

Now I understand. Its their responsibility to do this o their own, and yada yada, but what a gift, it would be. What a legacy you could leave knowing this. What a difference you could make. You could change the future opportunities or more accurately, the ease of opportunities your bloodline has. You would essentially be planting the seeds.

What if you did this for your children, and grandchildren and great-grandchildren. You have just changed your entire family tree!!

“Who cares about what grandma and grandpa left us in the will- They left us open to work for what we love. To never worry in retirement. They gave us the opportunity to retire when we were in our late 30’s if we so desired.”

Let’s say your well off and you did this for your grandchild. You are well off enough, you simply invest for her/him $250 every month. (Remember you love them) . When this grandchild of your retires, they will have 50+ Million dollars.

Now I know money isn’t everything, and I honestly don’t think people would take things to this level. Plus if I had millions at 40 I probably wouldn’t be slaving away full of stress and worry either. But you have provided the opportunity. You see, not everyon gets to take advantage of the same opportunities. But you and your family have the ability to create that opportunity not only for yourself but your children, and their children and their children’s children. Stop thinking of just yourself! Think long and hard about the opportunities you can create for the next generation of your family with small continuous contributions. $50 a month.