Plan the perfect asset allocation recipe.
For years, you have heard professionals talk about the importance of “asset allocation” in investment planning, but what does that mean and how does it truly relate to you and your money?
Most Americans have made or helped make soup. It is a simple and straightforward process. Once you determine the type of soup you wish to make, you look up your recipe and begin to follow the instructions. You gather your ingredients, clean and cut them to size if necessary, measure each ingredient for the appropriate volume, and finally – add each ingredient to your cooking pot as indicated in your instructions.
By carefully following this predetermined process (or recipe), you increase your chances of obtaining the specific result you seek (taste). When designing a portfolio, your Vermillion Financial Advisor starts off in a similar fashion.
“What type of soup would you like to make?” converts to “What type of portfolio is to be designed?”
A Vermillion Financial Advisor needs to crystallize what is to be the ultimate goal of your portfolio. Will it be focused on growth, generating income, or something else?
“How many people does the recipe need to serve, and when?” converts to “What is the ultimate desired size of the portfolio, and how much time do you have for it to reach this target amount?”
Most cooks need to consider additional factors such as sodium levels, calories, and the possible allergies of the people who will eat the soup!
A Vermillion Financial Advisor also needs to consider additional factors such as a client’s stage of life, tax brackets, future portfolio distributions and a client’s willingness to experience risk – from both an investor’s emotional perspective and a historical perspective – in order to meet the minimum rate of return necessary to fund their portfolio goals.
Once these basic answers have been determined, you can start to gather the ingredients for your investment portfolio, such as stocks, bonds, real estate, foreign investments, etc. A Vermillion Financial Advisor will only gather into the portfolio those various types of investments (or ingredients) that are acceptable to the client.
All in all, asset allocation is about taking the time to design the appropriate portfolio based on the long-term goals and needs of the investor.
Many investors have been led to believe that by throwing a bunch of investments together with no predetermined plan (or recipe), that they are applying asset allocation policy. However, similar to soup making, if all you do is gather a bunch of ingredients and throw them into a pot for an undetermined amount of cooking time, the result may be considered soup, but you’re unlikely to end up with the desired taste or consistency you wanted. The same can be said for this “pot luck” method of investing – you’re unlikely to end up with your desired results.
Using a Vermillion Financial Advisor to assist you with your asset allocation choices tends to benefit investors in both the increased chance of your portfolio reaching your desired result, and the decreased amount of time you need to worry about it.
By working together to establish an appropriate asset allocation recipe, you and your Vermillion Financial Advisor are well on your way to becoming financial master chefs!
Wishing you financial prosperity,
Mark La Spisa
How does making soup relate to your portfolio?
soup relate portfolio
Note: The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendation for any individual. Please remember that past performance of investments may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this post serves as the receipt of, or as a substitute for, personalized investment advice from Vermillion Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed within this newsletter to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.
Charles Schwab