Asset Allocation Calculator: How to Create a Balanced Investment Portfolio
For investors who possess over $10 million in liquid assets,optimizing the performance of their investment portfolio is on top of the mind for successful wealth management.It all begins with proper asset allocation.Many affluent individuals prefer using an asset allocation calculator for tailoring their strategy to their investment horizon. We recommend working with a professional to devise an effective action plan that perfectly aligns with your unique financial situation. If you aren’t sure what to look for in a financial advisor, make sure you go through our exclusive guide for helpful tips.
STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION
The insights you’ll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.
Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.
You can also talk to one of our experts at Pillar Wealth Management to discover what a financial advisor can do for you. Our team takes pride in helping high net worth and ultra high net worth individuals with $5 to $500 million in investable liquid wealth allocate their assets smartly for creating a well-balanced portfolio.
Without further ado, let’s dive in to discuss what asset allocation really is and how you should go about your asset allocation strategy.
Table of Contents
What is Asset Allocation?
Asset allocation refers to an investment strategy aimed at assigning your portfolio’s assets based on your unique financial needs, goals, risk tolerance, and investment horizon. It helps create the right balance between financial risk and reward, which is critical for long-term financial security. In fact, it is one of the five essential shifts every high net worth and ultra high net worth individual needs to make to achieve financial serenity. Read about the other five shifts in our guide here.
Asset allocation is a crucial aspect of wealth management for affluent individuals. Your choice to allocate your assets in bonds, stocks, and cash and equivalents determines your investment results.
Your asset allocation strategy should revolve around the specific goal you have in mind. It can be anything from buying a property, starting a new business, or saving for retirement. Needless to say, it requires careful analysis, smart decision-making, and attention to detail. You can’t let your emotions cloud your judgment. This is why it is best to reach out to a financial advisor for expert advice and support throughout the process.
How Do You Calculate Asset Allocation?
As much as you wish there was asimple formula fordetermining the right asset allocation, there isn’t. However, you can use an asset allocation calculator tocreate a balanced investment portfolio.
There are several calculators out there dedicated to helping you understand your risk profile and determine the best way to allocate your assets across asset classes based on your age, long-term goals, and risk tolerance.Please note that you will have to readjust your strategy and rebalance your assets over the course of your investing period.
Smart Asset is an excellent asset allocation calculator that you can use to identify the types of investments that are right for you. Alternatively, you can consult with an experienced financial advisor for expert POV on calculating asset allocation. Check out this beginner’s blueprint to discover how you should go about choosing the right advisor for your individual needs.
What Should My Asset Allocation Be for My Age?
The idea behind age-based asset allocation is that your portfolio’s risk exposure should decrease as you grow older.
One rule of thumb that you can follow to determine asset allocation based on your age is that the percentage you allocate to debt funds should equal your age. Simply put, you can find your equity allocation by subtracting your age from 100.What we mean to imply here is that as you must move your asset allocation from equity to debt funds with age.
For instance, let’s suppose you are 25 years old right now and your portfolio comprises 75% of equity funds and 25% of debt funds and cash. So after 20 years, you can tap into equity-oriented balanced funds. This means that 65% of your funds will be in equity and the rest will go into debt.
Now when your retirement approaches and you enter your 60s, you may adopt a systemic transfer plan. As per this plan, your investments will gradually move from equity funds to a debt fund.This may be a liquid fund from where you will be able to redeem units later with a systemic withdrawal plan, depending on your income needs.
To learn about age-based asset allocation in detail, feel free to contact our expert team at Pillar Wealth Management today.
What is a Good Asset Allocation for a 50-Year-Old?
As a 50-year-old, you’re almost there to begin your retirement period.At this age, you may still be thinking about finding ways to protect your wealth and preserve assets so that you can thrive in the golden years. Since you’re a decade away from retiring, you may be aiming for successful long-term investing. Before we tell you how your asset allocation should look like at this age, we urge you to read our book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies For Families Worth $25 Million To $500 Million.
Following the rule of thumb, when you subtract your age from 100, you get 50.A sample asset allocation will comprise 50% to 60% of stocks and 40% to 50% of bonds. From here, you are free to modify your asset allocation based on your investment goals and risk tolerance.
For example, if you have a reliable income source right now and are sure that you won’t need to tap into the retirement funds for the next 10 years,an increased stock allocation may be the best bet for you.On the other hand,if, when you get retired, you expect your portfolio to cover your expenses as soon as possible, you might want to invest most of your money in bonds and high dividend-paying stocks regardless of your capacity to handle risk.
Since you’re close to your retirement now, you should try your best not to lose focus. All your life, you have worked so hard to accumulate wealth, grow your savings, and invest in high-performing stocks.Now, it’s time to be more conservative in order to protect what you’ve built so far.
This is a good time to invest a portion of your wealth in stable funds, such as bonds and money markets. These options don’t offer big profits but keep your wealth protected from risks you can’t afford to take at 50.Instead of directing your energy and effort towards building wealth, you should now start thinking about when you would want to retire. To make sure you choose the right time to walk away, you can talk to one of our specialists for unbiased advice and guidance.
Tips for High Net Worth Investment Management
Below are some tips for high net worth and ultra high net worth investors.
Diversify Your Portfolio
A sure-fire way to protect your portfolio and enhance its performance is by embracing diversification. With a diversified portfolio, you can spread the risk and have returns coming in.Thanks to this strategy, you may also be able to access the primary market and enjoy lower risk with higher returns.
You can talk to a qualified financial advisor to determine the best ways to diversify your portfolio. We have prepared an easy guide for you to help you understand the ins and outs of high net worth portfolio optimization.
Consolidate Your Assets
You must understand that portfolio diversification is not about holding multiple investment accounts that are similar in nature from different financial institutions. It is about how you invest your money.
Asset consolidation offers a number of benefits. Some of these include:
• It eliminates duplicated investments and repeated efforts from the equation, allowing you to optimize your portfolio more efficiently
• It reduces the costs related to the opening of multiple investment accounts at different institutions
• It makes the investment tracking process easier for you
• It involves fewer tax forms and account statements, streamlining the administration process
• It allows your financial advisor to look at the bigger picture and gain a clear understanding of all your income sources
• It makes the process of retirement planning more efficient
• It provides a single point of contact,simplifying the estate settlement process
Pool Your Investments
Investment pooling is a managed fund or exchange traded fund is also a wise decision. This strategy minimizes risk, even in the worst of situations.
Audit Your Portfolio
When you have a diversified portfolio, it may be challenging to stay on top of the performance of each investment. Therefore, it is important that you take out some time to audit your portfolio on a regular basis. This will allow you to identify any unexpected costs or costs that you may not be aware of. You can then work with your financial advisor to find a way to reduce or eliminate these costs.
Minimize Tax Exposure
Affluent individuals fall into the higher tax bracket. Hence, you must try your best to minimize your tax exposure. One way to go about this is by securing tax-free investments, like tax-free municipals.
As a part of your portfolio diversification, you should consider keeping a small percentage of your wealth in cash. This may come in handy when you witness a drop in the market.
Give to Charity
As an affluent individual, you should consider donating surplus assets to charitable organizations. This will help you avoid capital gains tax and reduce your payabletaxes.You must know that publicly listed securities do not attract capital gains tax once their value rises after charity donation.
You can also establish a charitable foundation to create a philanthropic legacy in your name. With this will come greater flexibility and control.
Get Expert Advice for Creating a Balanced Investment Portfolio atPillar Wealth Management
As a wealthy investor, finding a financial advisor who understands the intricacies of asset allocation has to be your top priority.The way you allocate your assets has a significant impact on the performance of your investment portfolio.
In addition to using an asset allocation calculator, you should work with a qualified and experienced professional who can help you determine your ideal asset allocation. At Pillar Wealth Management, we have a team of dedicated experts who have been helping high net worth and ultra high net worth individuals with $5 to $500 million in liquid assets optimize their portfolio. Based on your unique financial situation and investment objectives we will offer unbiased advice andexpert guidance at every step of the way. With us, you can expect 100% customized solutions aimed at helping you achieve the financial security you deserve.
Ready to take your asset allocation and investment management strategy to the next level?
Our financial advisors would love to discuss your financial situation and offer guidance and support in a free, no-obligation consultation session. Let’s talk today!
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