Money Management & Retirement Planning Advice by Barry Unterbrink, Chartered Retirement Planning Counselor

Friday, July 06, 2012

The Asset Allocation Advantage


The financial markets ended June and the first half of the year in an explosive fashion last Friday. Stocks rose two to three percent. Gold gained 3%, oil shot up 9%. Today, stocks are giving back some due to the weak employment report this morning. As June ended, the stock market averages could not pull positive for the second quarter; The Dow, SP500 and Nasdaq were off 2-5%. For the first half of 2012, the numbers show more strength; with price gains of 7-12%. To achieve those results, you needed to withstand reductions (drawdown) in your account value of 9-12% however.

It’s somewhat disconcerting in that the wild price swings have continued this year. A news announcement in Asia or Europe ripples across the time zones, and jerks our markets up and down. This often gives us reasons to question the validity of our investment strategies, and the strength of our stomachs. In the markets, when your money is invested, it's the journey along the bumpy road that will test your will and often de-rail your chances of achieving your goal. Another roadblock to our long term success: fear and greed. We’re wired in a way to avoid fear and crave success, which can turn to greed if not reality-checked. This usually leads to making poor decisions regarding our investments. It’s much better to have a plan, and then a backup plan also. The skittishness and price swings of the stock markets are forcing most investors to re-think the strategies of the past that have stopped working recently. The “buy-and-hold” approach with stocks and mutual funds has not produced decent enough gains to achieve many people’s goals the past 10-12 years.

One old-school paradigm that we agree is gaining steam is “asset allocation”; that is – designing a portfolio with specific allocations to stocks, bonds, metals, commodities, cash, and others that will perform well in most time periods, while lessening the big drawdowns in the overall portfolio, and provide some income. I’ve uncovered one such portfolio run in real time since the early ‘70’s that’s produced over 9% average* gain for 40 years; it has been implemented with our clients started last year. Ask me for details.


Outside of the stock market arena; (it should act as one leg of your financial stool), successful, risk reducing offerings include bonds, market-linked insured CD’s., fixed and fixed index annuities, and precious metals. Most of us don’t think in a diversified way – we think in isolation. The advertising, press and media further this thought. “If stocks are moving up faster than bonds, I will sell my bonds and buy more stocks”. Once you do that, now you have altered your allocations, and your probable outcomes will change. More stocks = more risk of loss generally; more bonds = less risk generally.

Do you know where you stand asset allocation-wise today? If you have multiple investment accounts, at a bank, broker or insurance company, it would be helpful to write down the values and place the numbers in categories of “stocks”, “bonds”, “cash” and “other” as step one. Then break these totals down further by “liquid protected”, “protected growth” and “risk growth”. Finally, ask yourself, “How much am I willing to give up in GAINS, LIQUIDITY, and PROTECTION across my various investments and savings buckets?” This exercise is a great start to understanding your asset allocation and risks, and helps to identify some changes that may be needed to achieve your goals.  Call me if you need help or for a free review.

The July Market-Linked CD offerings are now out. You will receive a separate e-mail on the minimum caps on this safe money offering on Monday, July 9th.

Thanks for reading.

*Compounded annual growth rate.

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