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“Put in the work” doesn’t necessarily equal results.
We tend to believe that what we put in is what we get out.
“1 hour of work = 1 hour of results”
When in reality a small amount of effort, when applied in the right context, can produce disproportionate results.
We tend to believe that what we put in is what we get out.
“1 hour of work = 1 hour of results”
When in reality a small amount of effort, when applied in the right context, can produce disproportionate results.
For example, 1 viral tweet can lead to a surge in followers whereas having no viral tweets takes more time and effort to build your follower base.
Why do I bring this all up?
Because in the case of investing, “the right context” comes from your asset allocation.
Why do I bring this all up?
Because in the case of investing, “the right context” comes from your asset allocation.
Asset allocation is the breakdown of your investment portfolio among 3 different investment types - stocks, bonds, cash and/or cash equivalents.
Why is it critical?
Because it’s going to drive your portfolio performance based on how you divvy up the different investment types
Why is it critical?
Because it’s going to drive your portfolio performance based on how you divvy up the different investment types
Your goal is to determine an asset allocation that fits within your retirement horizon & risk tolerance.
How do you determine your asset allocation?
A simple rule of thumb has been 100 - age. Over time there have been new “rules of thumb” popping up such as 110-age or 120-age
How do you determine your asset allocation?
A simple rule of thumb has been 100 - age. Over time there have been new “rules of thumb” popping up such as 110-age or 120-age
Example: an asset allocation for a 20 year old may look like 110-20 = 90, meaning 90% equities (stocks) & 10% bonds
Why has the rule of thumb formula increased over time?
Because life expectancy has increased AND returns of bonds are lower than what they were in the past.
Why has the rule of thumb formula increased over time?
Because life expectancy has increased AND returns of bonds are lower than what they were in the past.
Remember this is a simplified formula but it’s to provide you an idea of asset allocation.
If you notice, as you increase in age, the equities value decreases.
Why does it decrease?
Because as you get closer to retirement, you may want to decrease your volatility.
If you notice, as you increase in age, the equities value decreases.
Why does it decrease?
Because as you get closer to retirement, you may want to decrease your volatility.
Decreasing your volatility as you near retirement is important because you don’t have as many years to recover from the dips in the stock market.
Aside from recovery of dips, how you handle the emotional swing of your portfolio is critical.
Just this year with COVID in March, we saw large drops. Aside from not loving seeing your portfolio drop, what action did you take?
Did you sell? Hold? Buy more?
Just this year with COVID in March, we saw large drops. Aside from not loving seeing your portfolio drop, what action did you take?
Did you sell? Hold? Buy more?
This can be used as indicators for what is an acceptable risk tolerance for YOU.
Going back to the example of the 20 year old with 90/10 split.
If the downturn was too much to bear, this likely wouldn’t be a good asset allocation for you.
The right mix is VERY personal.
Going back to the example of the 20 year old with 90/10 split.
If the downturn was too much to bear, this likely wouldn’t be a good asset allocation for you.
The right mix is VERY personal.
Remember there is only so much I can cover in a tweet thread. There are many other factors to consider:
>financial goals
>investment horizon
>diversification
Make sure to do your own research or contact an investment advisor for your specific situation.
>financial goals
>investment horizon
>diversification
Make sure to do your own research or contact an investment advisor for your specific situation.
