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How Should We Allocate Our Investments? – Newsletter

Investments August 15, 2016 Author: Woody Derricks

How Should We Allocate Our Investments?

(4/2016 Newsletter)

One of the first questions that many prospective clients ask me is: What should we do with our investments? I usually reply with: That depends. Of course this is exactly what they don’t want to hear! Everyone wants an immediate answer to their questions, yet this is a very complex issue.

What’s Your Objective: Think about your own portfolio. Considering your investments, what rate of return do you want? 100%, duh! Well, if that’s your reply, I suggest you focus on a “reasonable” return. The next question to ask yourself is: What rate of return do I need? There is a subtle difference between these two questions. One speaks to investment performance while the other speaks to goal achievement. If you want to actively trade your account and take a lot of risk, you may want to focus your investment objectives on your response to the first question.

If you are concerned more about retiring comfortably while taking a reasonable amount of risk than you are about targeting the returns of the stock market, then you’ll want the answer to the second question. When selecting investments, you may want to keep your focus on working towards your goals rather than just attempting to receive the best return on your money.

Balancing Act: When I create portfolios for couples, I utilize the most appropriate investment options available to each client in his/her investment accounts. Where you are limited in investment selection (such as in your 401k or TSP), a couple may pick the best investments in each of their plans. For example, one of you may invest in stocks in your retirement plan at work and the other may utilize bonds. As a result, we may have a client with a very aggressive 401k portfolio and the other with a very conservative mix.

Because you have many more investment options outside of your employer sponsored retirement plan, you may want to use that money to compliment the investments in your 401k. As an example, if you’re utilizing large company stocks in your retirement plan at work and you find that small company investments are appropriate for you, you may want to allocate a portion of your outside investments in small company stocks.

How to Measure Your Success: I highly recommend that if you’re using a diversified portfolio that you do not compare your performance versus an index or random benchmark. The indices often mentioned on TV consist of the stocks of the 30 or 500 largest publicly traded US companies. With a diversified portfolio, you may have real estate, international stocks, bonds, small US companies, gold, or any number of other investments that aren’t the largest US companies. If you compared your performance versus those benchmarks, you’re comparing apples to oranges…or as I often say apples to a basket of fruit- a basket of fruit may have apples, but it often as much more in it than just apples.

The measurement I suggest is comparing your performance versus what you need in order to achieve your goals. By creating a financial plan and determining how much money you should have saved at the end of every year in order to achieve your goals, you are able to compare your results versus the plan’s figures. If you have more money than the plan says, you may be able to reduce your risk, retire sooner, or know that you have a buffer in the event of a down year for the stock market. If you have less than the plan says you should have, you may want to increase your monthly savings, increase the risk of your investments, or adjust your goals.

I recommend that everyone spend an hour or two at least annually to discuss their finances. Talk about where you are and where you would like to be. Talking about money is rarely easy, but taking this step will simplify life going forward and help you to pursue your goals.

If you’re looking for guidance with your investments or financial planning needs, contact us to discuss how we help our clients.

The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual.

Partnership Wealth Management is comprehensive financial services company. We are committed to providing our clients with financial planning and wealth management services to help them make the most of their investments. At Partnership Wealth Management we have a long history of working with the LGBT community. Among our many services we offer financial planning for gay couples and lesbian couples as well as estate planning for gay couples and lesbian couples. Financial planning is an important part of preparing for the future. Contact us today to get started: www.partnershipwm.com.