Your Financial GPS: Why Asset Allocation Matters

Most of our client conversations revolve around asset allocation, the suitability of which, we believe, is the key to long-term success related to reaching financial goals. When we talk about asset allocation, we are not considering whether to invest in Stock X or Stock Y, rather, we are establishing an investment plan covering the broad asset classes like stocks, bonds, and alternatives. This plan is meant to be long-term in nature, designed to weather the highs and lows of a typical market cycle.

Think of establishing an asset allocation plan like programming a destination into your GPS. The algorithms in the program will consider all the variables like traffic, tolls, speed limits, etc., and then provide you with your roadmap. On a long car trip, you will hit congestion, construction, stretches of open road, and perhaps a few speed traps, but in the end, you often find that you arrived at your destination at the time originally predicted when you set off. The key was following the itinerary, and the rest took care of itself.

One of our key jobs as advisors is to make sure our clients stick to the plan and not let the ugly sides of behavioral finance take over. If our driver decided to drive much too fast or much too slowly, he increases the risk of crashing or not even arriving at his destination. If our investor takes too much or too little risk, then the odds of failing to reach his investment goals increase as well. As your partner, one of our main responsibilities is to ensure that you stay on track, driving the speed limit, while avoiding any unnecessary detours.

In Lewis Carroll’s Alice in Wonderland, an exchange between the Cheshire Cat and Alice is often paraphrased as “If you don’t know where you’re going, any road will get you there.” We encourage readers to determine where they want to go with their investment life and work with an advisor on establishing an asset allocation plan to get them there.