Traditional Asset Allocation is Dead

If you’ve been investing for any amount of time, you’ve probably heard of asset allocation. Perhaps your advisor has mentioned it when discussing what is in your portfolio. Maybe you’ve heard the term when others have talked about diversification. Typically, advisors design portfolios with 60% bonds and 40% stocks to be moderately conservative, and 40% bonds and 60% stocks to be moderately aggressive.

But this traditional method of investing is becoming an archaic strategy. Is there a better way that will optimize your resources while also taking into account your needs, goals, and values?

What Is Your Risk Tolerance?

Many people categorize themselves as “medium risk” because it sounds safe. But realistically, your risk level is unique to you and will change as you enter different seasons of life. For example, when you were young and decades away from retirement, you were probably more willing to take on investment risk with the hopes of seeing your money grow. But as you age and draw closer to your retirement years, you are most likely more focused on preserving your wealth so you have guaranteed income for many years.

Before you make any investment decisions, think about your risk tolerance. Look at your age, your current wealth, and your future goals, and come up with an asset allocation plan based on your conclusions. Once you have determined how much risk you are comfortable with, you need to take the next step and allocate the amount of risk that you want to take on in each investment category, such as fixed income, equities, real estate, and alternatives.

Remember, things change as time goes on. Therefore it is important to set up parameters so that your risk tolerance and your portfolio allocation don’t become misaligned. Rebalance and reassess regularly to ensure that your portfolio is exactly where you want it to be so you won’t worry when the markets take a turn for the worse.

How I Can Help

Have you taken the time to find your risk level? Are you worried that your portfolio doesn’t reflect your unique situation?

A risk allocation model may very well be your ticket to confidence and peace of mind on your journey to reach your investment and retirement goals. Anyone can throw darts at a dartboard when it comes to investment selection, but having a risk allocation process in place can make all the difference in your long-term investment success. At Navigate Private Wealth, we develop your portfolio through strict, risk-based portfolio analysis. We aim to provide intelligent asset allocation paired with optimal risk mitigation.