This video is going to help you understand
why asset allocation in some studies is responsible for anywhere
from 40% to 90% of your long-term investment returns.
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Hi.
I'm Troy Sharpe, CEO of Oak Harvest Financial Group,
Certified Financial Planner professional,
host of the Retirement Income Show,
and author of the upcoming book, Core4.
Asset allocation is one of the most important things
that you can do when building a retirement portfolio,
or if you're younger,
building an investment portfolio,
but we have to understand
what asset allocation is in its very basic sense.
It's determining based on your needs,
objectives, and investment horizon,
how long you have to invest,
what is the appropriate mix of assets
for you to spread your money across.
When we look at your general pie chart here,
this is not an exhaustive list of all the asset classes,
just to convey what asset allocation in its basic sense what it means.
We have commodities.
We have stocks.
We have bonds.
We have real estate, international stocks and bonds,
emerging market stocks and bonds.
What percentage of your money, let's say you have $100,000 save,
what percentage did you put in stocks,
in bonds, in real estate across all these asset classes?
Now I want you to comment down below
what you think in 2018 was the best performing asset class.
Was it stocks, was it bonds, real estate?
What was the best performing asset class?
You're going to be surprised by this.
Comment down below with your answer.
This is a chart showing us the different returns
for various asset classes going back
from 2004 all the way through 2018.
If we pay attention to the red,
the red is real estate, 35%, 28%, -15%, -37%, 2.9%, 2.8%, 28%.
Real estate returns very widely.
This is why we don't want to have all our money in one asset class.
If we look at high grade bonds, 7%, 5.2%, 6.5%, -2%.
If we look at high yield bonds,
these are junk bonds we talked about before, -26%, +15%, +57%, +4%.
All of these different asset classes, they all have varying returns.
Asset allocation is the process
of determining based on your situation
what is the appropriate mix
to put in these different asset classes,
and how does that help you reach your objectives?
If we look at emerging market stocks, 32%, -53%, -18%, +18%, +19%.
If we look at large cap stocks in orange, +15%, +5%, -37%, +26%.
All these different asset classes have
different returns, but when you have
a portfolio where you spread your money across varying asset classes,
that's what the white is, 16%, 7%, -22%, +24%, +13%, 0.3%, 12%.
Instead of having high extremes and low extremes,
a more balanced portfolio keeps you in the middle.
That's the goal with having
an asset allocation strategy to help you reach your objectives.
If you commented down below,
the number one best performing asset class in 2018 was cash.
If you enjoyed this video, please share it with a friend.
This is a very important concept
that they should understand to help them grow and build more wealth.
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The goal is to help you build wealth,
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and continue to grow as you learn more about money and investing.
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