Our “My Optimal Asset Allocation Analyzer” (MOAAA©) tool identifies your primary investment portfolio strategy. However, if you have many investment goals, it is possible to override your MOAAA© results and allocate a portion of your investment dollars to each of the 5 portfolio models.
Our investor (say, Suzanne) may allocate as follows:
- 30% of the portfolio to the Conservative Income Cash Flow portfolio model for money that she wants to spend in the next 1-3 years
- 20% to the Retirement Income Cash Flow portfolio for money she hopes to spend in a 3-5 year time-frame
- 30% in the Growth with Income portfolio for money she wants available in 5-8 years
- 10% in the Growth with Value portfolio for money she will need in 8-12 years
- 10% in the Aggressive Growth portfolio for money that she wants to use to help pay for her young grandchildren’s college needs in 15 or more years.
To maximize the benefit of these 5 model portfolios, the investor can re-balance each year by adding or reducing the amount in each model to stay within the original percentages that she desires. This re-balancing helps to reduce the risks in the entire portfolio by moving excessive profits from the more risky portfolios to the more lower risk, lower return portfolios.
The reverse is also true. The investor can re-balance by taking excess money from the conservative portfolios and placing these amounts into the more aggressive portfolios after a year of down stock and/or bond markets. This allows the replacement of the loss amounts in the aggressive portfolios so that the additional funds can be invested to take advantage of a potential rebound.
Overriding and re-balancing get easier the more you use them.
Note: Any annual earnings generated from each portfolio (interest, dividends, capital gains) can be re-invested; or if you choose, you can spend them. Be aware of any tax consequences either way.