The retirement industry doesn’t include, in their asset allocation models, perhaps your largest asset – huh? To refresh your knowledge of asset allocation, the goal of asset allocation is to minimize your risk, and enhance your returns. You want to diversify your assets, so that your overall portfolio, is not concentrated in one asset type. Doing so, having all your assets in stocks for instance, greatly increases your risk, therefore, you should have a portion of your assets in bonds. And conversely, having all your assets in bonds greatly reduces your return, so you should have a portion of your assets in stocks. You are looking for the risk vs. return ratio that is appropriate for your age and circumstances.
That’s the retirement industry theory on asset allocation, you’re probably familiar with, and it’s correct except it doesn’t include…
Your house! aha! Yes, your house is an asset, perhaps your largest asset, and it’s not included in the standard asset allocation models. Why? Because, unless the retirement industry is selling you home equity loans, they don’t make any money off your house. They earn money when you purchase investments. Stocks, bonds, foreign equities, the usual suspects. And asset allocation, is a method by which by which the industry is constantly adjusting your portfolio, and therefore, is constantly collecting fees and commissions. It’s why they push asset allocation, and automatically adjusting funds, so much. What’s the significance?
Well, besides showing another example of how the retirement industry misleads people, and how they connive to collect fees, it means asset allocation as you know it is worthless. Asset allocation must be re-thought. Asset allocation must include all your assets, not only your mutual funds, 401K’s and IRA’s. Otherwise, asset allocation is just hype, designed to enrich an industry, and meaningless to calculate. Really, not including your house in asset allocation, is stupid and wrong.
Many Americans, base their retirement, on the equity in their house. A house is an asset – it has value. It appreciates and depreciates, it can be sold for cash, it can be rented for income. It must be included in your asset allocation model. If your house represents 80% of your retirement assets, who cares what your mix of stocks and bonds is, if the value of your house is in decline.
An Green Retirement asset allocation model includes all your assets, when we create retirement plans, this way you get a better picture of how your wealth is diversified.
Learn more about Green Retirement Planning – And find out how you can save your retirement and the planet!