Illumination Wealth October 2014: The 8 Vital Components Of Your Asset Allocation
Happy October!
We are three fourths of the way through 2014 and my wife is three weeks away from delivering baby number two. This child will create a perfectly balanced family portfolio for us – one boy and one girl. Being a financial advisor, there is always talk about designing the perfect portfolio but even more important is developing the most ideal asset allocation. This month we will delve into the 8 vital components of your asset allocation.
- The 8 Vital Components Of Your Asset Allocation
- Illumination’s Media Spotlight: Financially Intelligent Insights
- The Market Scoreboard for September 2014
The 8 Vital Components Of Your Asset Allocation
“If you count all of your assets, you always have a profit.” – Robert Quillen
In the financial advisory world, so much time is spent discussing the minutia of investing and personal finance. In this past week alone, I can think of so many different conversations with friends and acquaintances that were much more about the trees in one’s personal financial life than the forest.
To lead a fulfilling and successful financial life you have to allocate your assets appropriately. When it comes down to it, there are only a few things that really matter and you need to make sure you are allocating your life’s assets appropriately.
Your Health: As the adage goes, “Health is Wealth.” Maintaining good health is a treasure in its own right. If you are extremely wealthy, it doesn’t do you any good if you’re not well enough to enjoy the money. Rich or not, health is one thing all of us need to aim for and maintain. If you do not have your health you do not have anything. Without health, you would have to allocate your resources (both time and money) in order to care for yourself and thus not be able to contribute to your family and your community.
Your Family: “The happiest moments of my life have been the few which I have passed at home in the bosom of my family.” – Thomas Jefferson. In the book, How Will You Measure Your Life by Clayton M. Christensen he said: “work can bring you a sense of fulfillment— but it pales in comparison to the enduring happiness you can find in the intimate relationships that you cultivate with your family.” By making sacrifices for something worthwhile (that being our family), resentment doesn’t grow but it strengthens your commitment to it.
Your Career: So much of your life is spent in your career and on your work. So why not find a career you love so you never have to work a day in your life. Far too many people are unhappy in their jobs. It’s critical for your own fulfillment to get clear about about your dream career. Create your own path and do something that you never want to retire from (but give yourself the option to when the time is right).
Your Personal Development: Jim Rohn, one of the world’s greatest success philosophers always found that that people’s income rarely exceeds their own personal development. He said sometimes income takes a lucky jump, but unless you learn to handle the responsibilities that come with it, it will usually shrink back to the amount you can handle. A very rich man once said, “If you took all the money in the world and divided it equally among everybody, it would soon be back in the same pockets it was before.” It is hard to keep that which has not been obtained through personal development.
Your Education: Education is a must for a promising future and a stable life. Your education makes you wiser so that you can rely on yourself to make intelligent decisions. Furthermore, an educated person has more chances of earning a higher income than one that doesn’t have an education.
Your Money: If you take great care of your money, your money will take great care of you. This means your must spend your money and time wisely. Living below your means doesn’t build wealth, at least not at a reasonable rate. The key is to live well below your means. You must produce sufficiently more income than you spend and invest the difference. Wealth is a form of delayed gratification. When you save money you are building a small army of soldiers that self-duplicate into additional soldiers that grow until you have a massive army that supports your lifestyle for a lifetime.
Your Relationships: My friend and fellow financial planner Sophia Bera, said it nicely: “Connecting with our friends is important, not just because it enriches our lives, but also because there are many powerful health benefits of friendship.” Numerous studies have shown the value of quality relationships and friends. Not to mention, one of the biggest regrets of the dying is not staying in touch with friends according to Bonnie Ware. Invest in your relationships, it will pay big dividends.
Your Portfolio Asset Allocation: Ray Dalio, portfolio manager of the world’s largest hedge fund has said: “the first thing is you should have a strategic asset allocation mix that assumes that you don’t know what the future is going to hold…a portfolio that does well in different environments.” Your portfolio should be balanced, with a mix of stable investments and growth investments. Furthermore, minimizing costs is a key part of investing, especially in times of low returns. Limit expenses at all costs as the more you incur the less your portfolio will be worth.
Action Items:
Over the next 8 days make one personal investment of your time to improve each of these 8 vital components in your life’s asset allocation.
Illumination’s Media Spotlight
Here’s our monthly compilation of interesting articles and videos designed to keep you informed and engaged in the areas of personal finance, the economy and life. We hope you enjoy this month’s edition. Please send us your thoughts on this month’s articles and suggestions for future posts.
Matt’s Appearances
Matt Rinkey: Is a health savings account an IRA in disguise?
Merritt Bookkeeping 3 Must-Know Finance Tips for Small Business Owners
Personal Finance
Entrepreneur: Shark Tank’s ‘Mr. Wonderful’ on Teaching Kids About Money
The Wall Street Journal: Bogle wants to make your nest egg larger
Life
Seth Godin: Turning passion on its head
Great Videos, Podcasts & TED Talks
Eventual Millionaire: Larry Winget
Isabel Allende: How to live passionately-no matter your age
Market Scoreboard
Here is the market scoreboard for September 2014
Notes: Gol & DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend),; the DJ Equity All REIT TR Index does include reinvested dividends. Sources: www.stockcharts.com. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
Recently, market volatility has picked up and there has been a lot of headlines grabbing attention across the geopolitical and economic landscape. All major asset classes ended the month of September with losses. From U.S. stocks to international stocks, real estate, commodities, gold and even bonds. The S&P 500 ended September with a -1.55% decline for the month, but the quarter ended with a modest gain of 0.62%.
Since its peak in early September to the end of the month, the S&P 500 is down 2.2% but somehow it “feels” like a worse market than that – and it is. That’s because the Russell 2000 saw its intra-day peak on July 1st and has fallen 8.7% since then, and the Guggenheim Russell 2000 Equal Weight ETF is off by -11.42% (meaning the average small cap stock has declined over 11%). The US Dollar itself has strengthened which has made it’s impact felt on the assets that perform better with a weak dollar such as commodities and gold.
In the U.S., we have a positive economic profile, which is good for corporate earnings. But that also means the U.S. Federal Reserve could slow down it’s stimulative policies. Globally, it’s a different story. There are decelerating growth rates in Japan, Europe, and China, and that’s forcing their monetary authorities to try to reverse the trend.
The chart below incorporates a percent-off-high calculation to illustrate the peak to tough declines of 5% or more of the S&P 500 greater since the bottom in 2009 from. There’s been little in the way of any major pullbacks over the past three years. Market history has shown that investors should expect a 10% decline one time per year on average. So the recent volatility isn’t what’s unusual, it’s the fact that there hasn’t been any for a good stretch of time. October has historically been a more volatile month, but that also means that it has presented good buying opportunities
Investors often enjoy a strong wind at their back in the fourth quarter, based on seasonal patterns and stock market history.When looking at the S&P 500, more than half of the index’s gains over the past 25 years took place during the final three months of the year. There is something that is known as the presidential cycle and the Santa Claus Rally. Looking back historically suggests that investors just might find something to be happy about during the next three months. That being said, these year end rallies usually follow first half weakness and that is not the case this year. So don’t let the past performance be and an indicator of what will happen in the current market environment.
Investors often enjoy a strong wind at their back in the fourth quarter, based on seasonal patterns and stock market history.When looking at the S&P 500, more than half of the index’s gains over the past 25 years took place during the final three months of the year. There is something that is known as the presidential cycle and the Santa Claus Rally. Looking back historically suggests that investors just might find something to be happy about during the next three months. That being said, these year end rallies usually follow first half weakness and that is not the case this year. So don’t let the past performance be and an indicator of what will happen in the current market environment.
Illumination’s Community Shine
Congrats to our friend Aaron Keith and his team at Spark Health, a personalized natural medicine provider, on the grand opening of their new clinic in Solana Beach.
This month we encourage your to take some time to focus on all of the assets you have in your whole financial life. Don’t let the recent financial market volatility (or Halloween for that matter) spook you. Only looking at the risks in life can can scare you into making poor decisions and not appreciating all that’s worth living for. We appreciate your investment in us.
All the Best,
Matt & The Illumination Wealth Team
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The opinions and forecasts expressed are those of Matt Rinkey, President of Illumination Wealth Management (IWM) and may not actually come to pass. Mr. Rinkey’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Illumination Wealth services. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of IWM’s services. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Rinkey or Illumination Wealth nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Entities including, but not limited to IWM, its officers, directors, employees, customers and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. The analysis contained is based on both technical and fundamental research. Although the information contain is derived from sources which are believed to be reliable, they cannot be guaranteed. Past performance is never a guarantee of future results.