Why Is Asset Allocation Important?
The theory behind asset allocation is to
spread your investments across different asset classes to help
protect your portfolio from downturns in any one asset. Since
different investments are affected differently by economic events
and market factors, owning different types of investments helps
reduce the chances that your portfolio will be adversely affected
by a particular risk type. Does asset allocation really accomplish
this goal?
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Have You Assessed Your Risk Tolerance?
While investors want the highest returns
possible, returns compensate you for the risks you take - higher
risks are generally rewarded with higher returns. Thus, you need
to assess how much risk you are willing to take to obtain potentially
higher returns. However, this can be a difficult task. It is one
thing to theoretically answer questions about how you would react
in different circumstances and quite another to actually watch
your investments decrease significantly in value. What you are
trying to assess is your emotional tolerance for risk, or how
much price volatility you are comfortable with. Some questions
that can help you gauge that risk tolerance include.
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Investing vs. Paying Off Debt
It can be difficult to decide where to allocate
your funds when you want to both increase your investment portfolio
and reduce your outstanding debt. The decision typically depends
on the potential return of the investment compared to the interest
rate paid on the debt. There are some situations, however, when you should consider other factors.
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How Do We Measure Inflation?
The most commonly cited measure of inflation
is the consumer price index (CPI). However, the government releases
not one, but three, versions of the CPI -- the CPI-U (CPI for all urban consumers), CPI-W (CPI for urban wage earners), and C-CPI-U (the chained CPI for all urban consumers). All three CPIs measure the average change in prices paid by consumers for over 200 categories of goods and services in eight major categories.
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Keep an Eye on Inflation
Inflation has been tame for so long that
it's easy to ignore it when planning for retirement. However,
even inflation of 2% or 3% a year, over a period of many years,
can seriously erode the purchasing power of your funds. At 2.5%
inflation, $1 today will be worth 78 cents in 10 years, 61 cents
in 20 years, and 48 cents in 30 years. To combat the effects of
inflation on your retirement income, consider these tips.
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David K. Sebastian, CFP®, and his team of experts at The Physicians Wealth Management Group specialize in working with individual physicians and group medical practices. David is considered to be one of the top financial advisors in the country with more than twenty five years of Wall Street experience as a chief investment officer, portfolio manager, institutional bond trader, and estate planning, benefits planning and retirement consultant.
Commitment to his clients’ financial needs and well being is a primary motivation for David.
The Physicians Wealth Management Group was specifically created to address and manage all of the unique financial challenges that doctors are facing both individually and through their group medical practices.
Feel free to contact me at
www.physicianswealth.com or
dsebastian@sfr1.com
or call me at (973) 285-3600
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