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Asset Allocation

Asset Allocation

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Asset Allocation

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  1. Asset Allocation Bucket investing strategy

  2. How to Save Money & Build Wealth! Banks Checking & Savings accounts, credit cards, loans, etc Brokerage Firms Specialize in accounts for stocks, bonds, mutual funds => where you SAVE! • Linkchecking & brokerage accounts • keep them at separate institutions • Save $ through Direct Deposit & Automatic Investing 10% of Paycheck to Brokerage 90% of Paycheck to Checking

  3. Brokerage Accounts • Most financial institutions offer brokerage accounts • allow you to invest in stocks, bonds, mutual funds, commodities, etc…. • Beware:many brokerage firms have high/hidden fees • mutual funds fees, management fees, etc…..

  4. #1 Rule of Money Johnny Depp Files $25 Million Fraud Lawsuit Against Business Managers Alanis Morissette's manager admits to $4.8 million theft from singer

  5. I think I’m Brilliant very high risk! Real Estate risk? Cash Account Bonds Stocks Asset Allocation • Process of dividing your savings into investment “buckets” • Buckets picked based on Risk Tolerance &Time Horizon $100,000 Portfolio med. risk high risk no risk

  6. Real & Nominal return per year by Asset Class 1925 - 2012 Returns before inflation = nominal return . = real return Savings Account

  7. $100,000 Portfolio: Step 1: Asset Allocation: Choose investment by bucket

  8. Money Markets, Bank CD’s, Savings account: are short term accounts where you earn the federal funds rate(currently 2.25%) Purpose: to have “liquidity” for planned & unexpected expenses Target:6 months living expenses in “cash accounts” Expected return=> usually equals the rate of inflation Cash Accounts

  9. Government Bonds: 2-10 year in maturity are medium risk. Purpose: For a 2-5 year holding period Expected Return:1-2% above rate of inflation Age based allocation: Bond % Portfolio= Your Current Age 20-year old => 20% Bonds & 80% Stocks 70-year old => 70% Bonds & 30% Stocks Bonds

  10. Minimum of 5-year holding period. risk. highest historical returns => 9.8% nominal return over 100 years Highest historical volatility => losses of 20-50% do occur in Bear markets Follow age rule: 80% Stocks & 20% Bonds (for 20-year old) Invest in diversified stock portfolio, such as the SP 500 Index Fund Minimize fees paid to mutual funds, financial advisors & brokerage companies Stocks