Asset Allocation: Portfolio Type: Retirement vs. Agressive

By: Pete
Date posted: 12.06.2011 (11:11 am) | Write a Comment  (0 Comments)

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As I have written on other blogs that we own (such as IntelligentSpeculator), I am a strong believer in the bucket system when it comes to personal finances. What is it? Simply that when putting money aside, the first priority that you should have is funding your retirement. Everyone has different needs but as long as you are not on pace to save enough for your target retirement, I think you should stick to funding that account. What do I mean by “on pace”? If you are currently investing $500 per month into your retirement account and by anticipating returns over time you expect that to be sufficient, you would then be able to start working on a 2nd bucket. That bucket could exist to fund a specific project (trip, house, etc), a dream, or even to give away. There could be several buckets depending on how much you are able to save compared to what is required.

You Should Stick To Your Retirement Portfolio Until It Is Well Funded

What is the difference between a retirement portfolio and others such as a portfolio for a new house? In general, a retirement account will be more conservative because individuals do not want to risk as much. Not being able to build that amazing secondary house in California would be sad, but it would probably not bring as much stress as wondering if you’ll have enough to fund your retirement needs right?

What does more conservative mean?

-Less volatility (more fixed income in general)
-More Passive Investing (you do not take the luxury of predicting the future)
-Very infrequent trading (minimizing fees)
-Very long term approach

We will obviously be covering both types but the one we are spending the most energy on is the retirement portfolio, which for most investors is the core of what they’re working towards. It is also the type of portfolio that requires less work but still has incredible added value for the investor, especially given the very long term nature. Why? Paying an additional 1-2% of fees every year can hurt the performance of any portfolio but because of the compounding effect, the most dramatic impact it has is on longer term portfolios.

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