The single most important factor in your investing success

Posted on Posted in San Diego

Of course I’m talking about asset allocation. It’s how you balance your investments among stocks, bonds, cash, real estate, commodities and gold. Concentrating your nest egg in one or two asset classes is way too risky.

If you keep too much wealth in stocks in your 401K or IRA and the stock market goes south, you’ll suffer badly no matter how good the companies are. Or if you put all your wealth into rental real estate, you’ll have a rough time in a big real estate crash like 2008. I’m guilty of this one myself!

Since then I’ve learned to diversify across all asset classes. How much to put in the different classes depends on your age, risk tolerance and what’s going on in the markets. But the take-home message here is that all of your money should not be in one basket. Many folks I meet have all of their money in the stock market, but they think that because they have mutual funds they are diversified. No, it’s all the same asset class.

If that’s your situation, consider adding some rental real estate to the mix. It adds passive income and that income is likely to grow over time with inflation. There are also amazing tax write-offs to owning real estate that could cause the income to be just about tax free. I don’t think there’s any other investment that stacks up to owning good cash flowing property.

If you’re “underweighted” in this asset class, feel free to give me a call to discuss it. And if you’d like more information about asset allocation, I have an excellent article written by Dr. David Eifrig that I’ll be happy to email you, just call and ask.