In the last few years, when clients asked, "Wheres all my money," the question was open to different interpretations. It could have meant, "How did I manage to lose much of what I had accumulated in my company 401(k)?" Or it could have meant, "Wheres all the money that was in my variable annuity?"
Until recent months, when some people began to recoup some of their paper financial losses, one answer the advisor could give was that the value of all financial products tied to the stock market was down, and down considerably.
But there are other answers that arent so obvious. Most investment experts say that asset allocation is the key to stabilizing ones investment account values.
Everybody knows now that investment accounts that were allocated primarily to technology stocks or technology mutual funds had the biggest losses. How would asset allocation have helped avoid that trap? Its all about not putting the clients financial eggs in one basket, in this case, the technology basket.
Even though the financial services industry has promoted asset allocation for several years, a surprising number of people have never done a formal asset allocation.
Instead, they have divided their 401(k), IRA or VA contributions evenly between the investment options offered to them, or simply chosen one of the investment funds because it had the highest return in the past year. The former "approach" would have been safer than the latter because the investors choices would at least have been spread across a range of investment types.
The "accidental" asset allocation achieved by that approach might not have been the best one for a particular individual, but at least all of the eggs would not have been in one basket.
However, theres no need for anyones asset allocation to be an "accident!" Not only should all investors perform an asset allocation, they also need to review periodically how they have their assets allocated.
At different stages in life, investors have different needs.
