Why Asset Allocation & Diversification Can Make or Break Your Portfolio

These aren’t just boring financial buzzwords. They can help build wealth without losing sleep. Stick with me for the next 12 minutes, and by the end of this episode, you’ll not only know what they are — but why they maybe so crucial to your success as an investor.

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Transcript

[00:00:00] Speaker 1: Welcome to Wealth Grow, where we talk about building wealth, securing futures, and making smart financial decisions. [00:00:08] Speaker 1: My name is Stuart Cameron, [00:00:10] Speaker 1: OSJ branch manager and financial advisor with Wharton Investment Consultants. [00:00:15] Speaker 1: And whether you're just getting started with investing [00:00:18] Speaker 1: or you've been riding the market roller coaster for a while, [00:00:22] Speaker 1: today's episode is for you. [00:00:25] Speaker 1: Because today, we are diving into two of the most important, [00:00:28] Speaker 1: yet often misunderstood [00:00:30] Speaker 1: concepts in investing, [00:00:32] Speaker 1: Asset Allocation and Diversification. [00:00:37] Speaker 1: These aren't just boring [00:00:39] Speaker 1: buzzwords. They can help build wealth without losing sleep. [00:00:44] Speaker 1: Stick with me for the next twelve minutes, and by the end of this episode, you'll not only know what they are, [00:00:50] Speaker 1: but why they may be so crucial to your success as an investor. [00:00:55] Speaker 1: Let's jump in. [00:00:57] Speaker 1: Let's start with Asset Allocation. [00:01:00] Speaker 1: At its core, Asset Allocation is simply how to divide your investments [00:01:05] Speaker 1: among different asset classes. [00:01:07] Speaker 1: Think of it like building a smoothie. [00:01:10] Speaker 1: You choose how much banana, [00:01:12] Speaker 1: how much strawberry, [00:01:14] Speaker 1: how much yogurt. [00:01:15] Speaker 1: In investing terms, your ingredients ingredients [00:01:19] Speaker 1: are things like stocks, [00:01:21] Speaker 1: ownership in companies, high risk, high reward, [00:01:25] Speaker 1: Bonds, [00:01:26] Speaker 1: loans to governments or companies, [00:01:28] Speaker 1: typically lower risk, [00:01:31] Speaker 1: cash or cash equivalents, [00:01:34] Speaker 1: savings, CDs, or money markets, [00:01:36] Speaker 1: and real estate commodities [00:01:38] Speaker 1: or even crypto, if you want to go spicy. [00:01:43] Speaker 1: Why does Asset Allocation [00:01:47] Speaker 1: allocation usually [00:01:49] Speaker 1: behaves differently [00:01:50] Speaker 1: depending on what's going on in the world. [00:01:54] Speaker 1: Stocks might be booming while Bonds are slumping or vice versa. [00:01:59] Speaker 1: Good allocation [00:02:00] Speaker 1: creates balance. [00:02:03] Speaker 1: So if you're spending all your time chasing hot stocks [00:02:07] Speaker 1: but ignoring your overall allocation, [00:02:10] Speaker 1: you might be missing the forest for the trees. [00:02:14] Speaker 1: Now let's talk Diversification. [00:02:17] Speaker 1: Asset Allocation is the macro strategy. [00:02:20] Speaker 1: Diversification [00:02:22] Speaker 1: is more like the micro. [00:02:24] Speaker 1: Think of Diversification [00:02:26] Speaker 1: like not putting all your eggs in one basket. [00:02:29] Speaker 1: It's spread spreading out your investments within each asset class. [00:02:35] Speaker 1: So within stocks, you might own large cap US companies, [00:02:39] Speaker 1: small cap companies, [00:02:41] Speaker 1: international [00:02:42] Speaker 1: companies, [00:02:43] Speaker 1: or emerging markets. [00:02:45] Speaker 1: And within Bonds, [00:02:47] Speaker 1: government Bonds, [00:02:49] Speaker 1: corporate [00:02:50] Speaker 1: Bonds, short term, and long term Bonds.[00:02:54] Speaker 1: Diversification [00:02:55] Speaker 1: can help reduce the impact [00:02:57] Speaker 1: of any one investment tanking. [00:03:00] Speaker 1: If one company crashes, [00:03:01] Speaker 1: your whole whole portfolio [00:03:04] Speaker 1: doesn't crash with it. Bonds, and maybe some international [00:03:06] Speaker 1: An example, [00:03:07] Speaker 1: if you put all your money into tech stocks in early twenty twenty two, you probably had a rough year. [00:03:14] Speaker 1: But if you were diversified [00:03:16] Speaker 1: with some energy stocks, [00:03:21] Speaker 1: exposure, [00:03:22] Speaker 1: your losses would have been way less painful. [00:03:25] Speaker 1: And here's the beauty of [00:03:27] Speaker 1: it. When one area of the market zigs, another might zag. [00:03:31] Speaker 1: Diversification [00:03:33] Speaker 1: may help you smooth out the ride. [00:03:37] Speaker 1: Some examples. [00:03:39] Speaker 1: Sandra is 65, [00:03:40] Speaker 1: recently retired. [00:03:42] Speaker 1: Her portfolio [00:03:44] Speaker 1: is 60% [00:03:45] Speaker 1: Bonds, [00:03:46] Speaker 1: 30% stocks, [00:03:47] Speaker 1: and 10% cash. [00:03:50] Speaker 1: She needs stability and income. [00:03:53] Speaker 1: Her Asset Allocation [00:03:54] Speaker 1: reflects her need for lower risks. [00:03:58] Speaker 1: Jared is 30. He works in tech [00:04:01] Speaker 1: and won't need his investment money for decades. [00:04:04] Speaker 1: His portfolio [00:04:05] Speaker 1: is 85% [00:04:07] Speaker 1: stocks, [00:04:08] Speaker 1: 10% [00:04:08] Speaker 1: Bonds, 5% crypto. [00:04:11] Speaker 1: Riskier? [00:04:12] Speaker 1: Yes. [00:04:13] Speaker 1: But he has time to recover from downturns. [00:04:19] Speaker 1: Lisa owns multiple [00:04:20] Speaker 1: rental properties, so in her retirement portfolio, [00:04:24] Speaker 1: she underweights real estate and puts more into stocks and [00:04:28] Speaker 1: to avoid overexposure [00:04:30] Speaker 1: to one sector. [00:04:33] Speaker 1: All of these examples show how your [00:04:36] Speaker 1: and Bonds Asset Allocation Diversification [00:04:38] Speaker 1: should reflect your goals, [00:04:40] Speaker 1: your risk tolerance, [00:04:41] Speaker 1: and your timeline. [00:04:45] Speaker 1: If you're thinking, okay, how do I actually do this? Good question. [00:04:50] Speaker 1: Here are three easy steps to start. [00:04:53] Speaker 1: Figure out your goals. [00:04:55] Speaker 1: When will you need this money? [00:04:57] Speaker 1: What's your risk tolerance? [00:05:00] Speaker 1: Choose your Asset Allocation. [00:05:02] Speaker 1: A common rule of thumb, subtract your age from a hundred to get your stock percentage. [00:05:08] Speaker 1: For example, [00:05:09] Speaker 1: age 30 equals 70% [00:05:12] Speaker 1: stocks. [00:05:14] Speaker 1: Use ETFs or Mutual Funds to easily diversify. [00:05:18] Speaker 1: No need to buy a hundred individual stocks. [00:05:22] Speaker 1: And most importantly,[00:05:23] Speaker 1: revisit and rebalance your portfolio once or [00:05:26] Speaker 1: allocation [00:05:28] Speaker 1: is [00:05:29] Speaker 1: the [00:05:31] Speaker 1: blueprint. [00:05:33] Speaker 1: Diversification [00:05:35] Speaker 1: is [00:05:36] Speaker 1: the [00:05:38] Speaker 1: Asset Allocation is the blueprint. [00:05:41] Speaker 1: Diversification [00:05:42] Speaker 1: is the risk management. [00:05:44] Speaker 1: Together, they can be your shield in the unpredictable [00:05:47] Speaker 1: world of investing. [00:05:50] Speaker 1: If you only remember one thing from today, [00:05:53] Speaker 1: don't put all all your eggs in one basket, and don't forget to check which baskets you're using. [00:06:00] Speaker 1: If this episode was helpful, share it with a friend [00:06:04] Speaker 1: who's getting serious about investing. [00:06:07] Speaker 1: And, hey, if you've got questions about your portfolio [00:06:10] Speaker 1: or want us to cover a specific investment topic in a future episode, [00:06:15] Speaker 1: shoot us a message. [00:06:17] Speaker 1: Thanks for listening to WealthCo. [00:06:20] Speaker 1: If you enjoyed this episode, subscribe to the podcast, [00:06:24] Speaker 1: leave a review, and share it with someone who needs to hear this message. [00:06:28] Speaker 1: Have questions? [00:06:30] Speaker 1: Reach out to us at w w w a fiduciary adviser [00:06:34] Speaker 1: dot com. [00:06:36] Speaker 1: These podcasts are brought to you by Wharton Investment Consultants, [00:06:40] Speaker 1: fifty ten Canby Drive, [00:06:42] Speaker 1: Wilmington, Delaware [00:06:44] Speaker 1: one nine eight zero eight. [00:06:46] Speaker 1: Telephone, (302) [00:06:49] Speaker 1: 239-2111. [00:06:52] Speaker 1: Securities and advisory services offered through registered representatives [00:06:57] Speaker 1: of Centerra Advisor Networks LLC, [00:07:00] Speaker 1: member FINRA [00:07:01] Speaker 1: SIPC, [00:07:03] Speaker 1: a broker dealer and a registered investment adviser. [00:07:07] Speaker 1: Centerra is under separate ownership from any other named entity. [00:07:12] Speaker 1: The views depicted in this material are for information purposes only, and they're not necessarily those of Cetera Advisor Networks LLC. [00:07:21] Speaker 1: They should not be considered specific advice or recommendations for any individual. [00:07:27] Speaker 1: Neither Sotera Advisor Networks LLC [00:07:30] Speaker 1: nor any of its representatives [00:07:32] Speaker 1: may give legal or tax advice. [00:07:35] Speaker 1: Asset Allocation and Diversification [00:07:37] Speaker 1: are investment strategies that will not [00:07:41] Speaker 1: or protect you from a loss. [00:07:44] Speaker 1: All investing involves risks guarantee a profit [00:07:46] Speaker 1: including the possible loss of principle. [00:07:49] Speaker 1: There is no assurance that any investment strategy [00:07:53] Speaker 1: will be successful.