Do you know what the secret weapon is to making money and real wealth?
Is it the latest share tip? Bitcoin? (wow, I wish I got $1 for every time someone asked me about investing in bitcoin), property investing or property flipping?
Well the secret to not only making money, but keeping it, is ‘asset allocation’.
This is the only free lunch and it costs nothing.
Asset allocation is basically allocating your wealth across a variety of different investments.
I allocate my wealth into four buckets: security, growth, cashflow and lifestyle.
How do you know where to allocate and how much?
This depends on your age, the cash flow you have, your risk profile and how much capital you can access.
If you are invested in one asset class, then you are at risk.
There is no point in working so hard and then only to lose it because you had a certain view. A view that property for growth is the best strategy or share trading for cash flow is the way to go.
We all have a bias to growth versus cash flow, so it will taint your views on where to invest.
Just be aware of it
Also, don’t forget to rebalance your asset allocation every six to 12 months. If you are invested in shares and property and then gold, cash and certain assets go up, then check in to where your assets are allocated.
With the latest stock market blip, where the US fell over 1600 points in two days, I am reminded of what a mentor told me. Every asset class will halve at some point.
Yes, you heard right.
Do some research and you will be very surprised.
So, if it could be true that every asset class will halve in our lifetime, then diversifying your wealth through asset allocation is the best protection you can possibly get.
Paul Siderovski is managing director of SiDCOR chartered accountants