I have been trying to figure out a perfect balance of assets
for a 29 year old such as myself. I have come up with my own personal risk
profiles and would like to get the opinion of others to see where they are at.
When it comes to finding out where your money should be, I hear a lot of
financial experts say that at my age I should have 70-80% of my money in
stocks, and 20-30% in bonds. I am assuming that this is after you have saved up
6-12 months worth of living expenses into an emergency fund. However everyone
is different. Some of us have stocks, bonds, savings accounts, checking
accounts, CD’s, 401k’s, cars, boats, homes, etc. These are all considered
assets that make up your total net worth. When calculating net worth, some
people like to include all of these assets, and others like to just include
assets that appreciate over time. I don’t like to include my 2004 Cadillac
Deville as part of my net worth because every year this vehicle is worth less.
For the purpose of this example I am going to use a pie chart in order to see
where all of my money should be. I understand everyone has different goals and
assets so their risk profile might be completely different then mine. Some
people might just keep all of their money in a savings account because they
don’t have any room for risk. That is perfectly fine and I remember when I had
all of my money in a savings and checking account to. I didn’t start investing
until I had saved at least 6 months worth of living expenses in my savings
account. But now that I have more money I need to keep track of where it is all
going. I came up with a conservative, moderate, and risky profile for myself.
Currently I am in the moderate profile but I want to begin moving to the risky
profile because I think it better suits me at this time.
As I get older I am sure my feelings and risk tolerance will
change. Is there anything you would add or take away from this chart? If I
could I would add a Lending Club account to this but the state of Massachusetts
does not let any residents use these types of accounts. Please reply with any
questions or comments. I am always open to the opinions of other bloggers or
non bloggers!
DM,
ReplyDeleteSmart move with the 6 month emergency fund. You need to have a safety net that is liquid and definitely avoid any consumer debt.
With that said, I would say your "risky" allocation with 55% in checking, savings and CD's is actually a very conservative portfolio. I would consider 100% stocks with half or more invested in international companies to be "risky".
MDP,
ReplyDeleteI agree with you 100%. I think because I have always been super conservative, that my risky profile for others might seem too conservative. I am hoping to be a little less conservative in the future while I'm still young. Thanks for the tip. It's always great to hear the opinion of other investors such as yourself.
For your emergency fund you could put it all into a cash-able deposit that's redeemable after 30 days. You can treat this as your safe bond allocation. The rest you can put toward stock or other investments that have a greater yield. Dont forget if an emergency come up u can always cash in your cd or stocks and then readjust. I would second your risky portfolio is actually still quite conservative.
ReplyDeleteGood luck with your investments and Grind On!
AG,
DeleteYou make a solid point. I think.I have little too much in cash at the moment. I read somewhere that having 12 months worth of expenses in cash is the new norm. However I can always cash out stocks if an emergency came about. I do plan on getting into investment property in the future but I want to have a net worth of 50-75k before I start looking into property. Thanks for your support!