Personal Finance Exercises for the New Year, Part II
In last week’s Alert, we began a special series on personal finance exercises for 2012. The first installment was all about taking an inventory of all of your assets. Here we took a page from corporate CFOs, as they regularly are tasked with determining the precise value of their company’s assets. The result of that inventory should be that you now know how much money you actually have, and in what type of asset class that money resides (equities, bonds, real estate, gold or silver coins, checking account, CDs, etc.).
This week, we are going into Part II of the series, and that is to do an asset allocation review. This is the time to dig down deep into precisely where your assets are, and by that I mean knowing specifically which stocks, bonds, exchange-traded funds (ETFs), mutual funds, variable annuities, etc., you currently own. You also need to know how much you own of each security. Your goal this week is to take an inventory of all of your securities holdings so that you can see if there are any glaring weaknesses and/or omissions in your asset allocation.
Once you know, in percentage terms, how much of your total investment portfolio is committed to stocks, how much to bonds, commodities, cash, etc., you can make the necessary adjustments to get the desired mix of assets where you want them.
I am of the opinion that stocks are going to struggle to make headway at least in the first half of 2012. And while there certainly could be a lot of flux in stocks going forward, I think portfolios with a distinctly risk-averse orientation will perform much better than those with a lot of equity exposure. That means you’ll want to have more cash and bonds in your mix than equities.
If you find that you have a relatively high equity allocation, then you should think about reducing your level of exposure. If, on the other hand, you have a lot of cash in your portfolio, then I think your cautious approach will be rewarded in the months to come.
Next week, we’ll do an inventory of all of the income streams your money is generating. If your primary goal is to capture high yield and dividend income from your existing assets, next week’s lesson is aimed directly at you.
If you’d like to hear more about these personal finance exercises, and my take on all of the latest market action, then I invite you to sign up here for my weekly audio podcast.
