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Aug 17, 2016There is Romance in Asset Allocation!
Last Friday my husband and I did our usual Wedding Anniversary Day (or days) Off. It has been our tradition for the last 27 years! It all started when Manila Hotel (where we held our reception) gifted us with a free accommodation on our first wedding anniversary. So even if our honeymoon baby was only three months old then, we took a day off, just the two of us. Thanks to my mom, she was always our reliable guardian in times like this.
On our anniversary day, we still do the cheesy stuff. Marvin gives me a bouquet of flowers then we go off to a resort or a hotel we haven’t been to (or maybe one with free accommodation which we would occasionally receive as a gift). We’d watch bits and pieces of our wedding album and video (which was originally in Betamax) and reminisce about that eventful day, the 12th of August 1989. As the years went by, these pieces of memorabilia have been expanded to include our Tin (10th), China (20th) and Silver (25th) anniversaries. Yes we’ve said “I do” in ceremonies four times already. In fact, every single year we renew our vows privately during our anniversary.
What else do we do?
Marvin and I are admittedly romantic and we think this is one of the things that help keep our marriage alive. But on our anniversary, we also get down to business. We visit our Balance Sheet together and review our Asset Allocation! We’re weird that way, you know. :)
What is Asset Allocation? It is an investment strategy that attempts to balance risk versus reward by adjusting the percentages of the asset classes in your investment portfolio. Whether you are aware or not, you are implementing an asset allocation and this will play an important role in your wealth accumulation; consequently, the quality of your married life in your ripe old age.
Why is Asset Allocation important? Asset Allocation is the probably the most important investment strategy, even more important that stock picking, timing, etc. It’s because nobody can really predict the movements of the financial markets, the economy, both local and global, and this strategy helps you protect your portfolio from market ups and downs, by spreading your risk among the different asset classes.
Asset Classes. A couple may (or should I say should?) invest in the following asset classes:
*Note that you may invest either directly or through pooled funds (Mutual Funds or UITFs - Unit Investment Trust Funds) when buying stocks, bonds and money market instruments. Pooled Funds for real estate (REITs), gold and other commodities are not yet available in our country.
How to allocate. There are various prescribed allocations being recommended out there. Let me share what the three investment icons, Benjamin Graham, John Bogle and Warren Buffett have to say about asset allocation.
The mentor of Warren Buffett and author of investing bible The Intelligent Investor said, “We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of 75% to 25% in bonds. There is an implication here that the standard division should be an equal one, or 50-50, between the two major investment mediums.”
The Father of Low Cost Index Funds and founder of Vanguard Group said in his book Common Sense on Mutual Funds, “I recommend as a crude starting point that an investor’s bond position should be equal to his age.” This is very similar to the 100 minus Age equals Stocks, which is now being adjusted to either 110 or 120 less age due to the longer life spans we are now experiencing.
The world’s greatest investor said in his 2013 Letters to Berkshire Hathaway Shareholders that upon his passing the trustee of his wife’s inheritance was instructed to put 90% of her money into low-fee index funds and 10% into short-term government bonds.
Please take note that the above asset allocations are based on two basic asset classes only – fixed income bonds and stocks. These are rules of thumb from the investment icons and as in any rule of thumb, it provides us a quick and easy starting point. It works well for couples or individuals who are just starting a portfolio.
Instead of limiting yourself to any of the above formula or the others you will find in various sources, I suggest you come up with your own. Discuss it as a couple and bear in mind the important things to consider in your asset allocation.
Things to Consider in your Asset Allocation
All of the above will help you come up with the best asset allocation for your own needs. What is great about periodically checking your asset allocation is that you are able to update your financial journey in line with your life goals and dreams. Your goals and dreams change as you move from one life stage to another. So should your asset allocation. The regular assessment will remind you to re-balance. Rebalancing is quite difficult because it is counter-intuitive. It asks you to sell the asset class that’s doing well and buy the one that’s not doing so well. So this exercise of regular assessment will nudge you to do it.
There is romance in Asset Allocation.
Some think that money is the least romantic thing. Talking about it may bring about uneasiness, stress, etc. This is the reason why many couples do not talk about money deliberately. Unfortunately, not being deliberate about where you put your money is what brings about the loss of romance! I’m not kidding. Studies show that seven out of ten marital problems are about money.
So the next time you celebrate your wedding anniversary, you may want to include Asset Allocation in your lovey dovey agenda. Make it fun! :) It’s an opportunity to share your big dreams and carry on your journey in unison.
I also invite single persons to include this on their birthday assessment. Whether you’ll get married or not, it is something that you should be deliberate about.
May you reach all your dreams through your sound asset allocation!
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ANNOUNCEMENTS
3. Watch out for my FQ talks in cooperation with Security Bank. Dates and venues to be announced.
Rose Fres Fausto is a speaker and author of bestselling books Raising Pinoy Boys and The Retelling of The Richest Man in Babylon (English and Filipino versions). Click this link to read samples - Books of FQ Mom Rose Fres Fausto. She is a Behavioral Economist, Certified Gallup Strengths Coach and the grand prize winner of the first Sinag Financial Literacy Digital Journalism Awards. Follow her on Facebook and You Tube as FQ Mom, and Twitter & Instagram as theFQMom.
ATTRIBUTIONS: Photos from clker.com, forbes.com, gettyimages.co.uk, kids.nationalgeographic.com, kidscountry.com, usstockoption.com, wire.kapitall.com put together to deliver the message of the article.