Investing is for idiots, dummies, and fools.  Why?  Because unless you answer yes, to any of  the following questions, the odds are 90% that you will do worse by actively investing instead of simply maintaining a proper asset allocation.

Are you..
A senior executive at Goldman Sachs, J.P. Morgan, or one of the top 20 hedge funds?
A senior congressperson or senator?
A senior executive of a publicly traded corporation?

If the answer is no, and you are actively investing, then you are being played for an idiot, a dummy, or a fool.  The market is rigged.  The inside players, those listed above, already know the outcome before they invest.   They are not risking their money. You, the active investor, are only suckered in to play the game after the insiders have placed their bets.  Your loss is almost guaranteed.

Recent revelations about former Treasury Secretary Hank Paulson giving inside information to top hedge fund managers, members of congress profiting from insider information, not to mention Goldman Sachs shorting their own clients, should lay to rest any doubts as to the foolishness of investing in the markets.

The information you receive from the mainstream financial media is pure propaganda, propagated by Wall Street, to lure dummies, fools, and idiots into investing in the market after the insiders have placed their bets.  Don’t take my word for it.  Below is a video of former hedge fund manager, and financial media investing celebrity Jim Cramer, explaining to Aaron Task how he (maybe) manipulated the stock market using CNBC.

Do you have a few million dollars you can use to manipulate the stock market?  Have any friends in the financial media you can use to spread rumors?  If the answer is no, and you are actively investing, you are a fool, idiot, and dummy.

So, how do you save for retirement, if investing is for idiots, dummies, and fools?  Asset allocation, not investing, is the secret to saving and achieving your retirement goal.  Maintaining a proper asset allocation model, 70% S&P 500 stocks and 30% U.S. Treasury Bonds, beats 90% of mutual funds and money managers, and gives you 90% odds that you will not run out of savings for retirement.

The historical average annual return on this asset allocation model is 9%  Read What is Asset Allocation.

With asset allocation you are not trying to outsmart investors with insider information, wasting your time reading and watching financial propaganda, or chasing the herds of idiot, dummy, and fool investors to the stock market slaughterhouse.

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This is the third article, in a 3 article series, dealing with asset allocation.  In the first article, I describe what is asset allocation, and why it is important.   In the second article, I explain why the Wall Street asset allocation model is misleading, and dangerous for your retirement.

Properly allocating your assets is a critical element in retirement planning.  Improperly allocating your assets, before retirement, may force you to work longer.  Improperly allocating your assets, after you retire, may cause you to run out of savings during retirement.  Fortunately, properly allocating your assets is neither complicated, nor difficult.

The best asset allocation model is to maintain, both before and during retirement, an asset allocation of 70% S&P 500 Index and 30% short-term U.S. Treasury Bonds.  Once a year, on the same date, examine your asset allocation.  If your asset allocation has changed, for instance Treasury bonds are now 40% of your overall assets, sell bonds and purchase S&P 500 Index, so that your asset allocation returns to a 70/30 asset allocation model.

This simple asset allocation model and strategy, produces a historical 9% average annual return, beating 90% of mutual fund managers. (Bernie Madoff ponzi scheme gave investors a 10% annual return.)  It is also the asset allocation model, that allows you to safely withdraw an amount equal to 4% of your assets at retirement each year, without worrying about running out of savings during retirement.

To save money, potentially tens of thousands of dollars over your life-time, avoid using brokers and money managers to allocate your assets.  Also, avoid life-cycle funds, popular in 401k plans that do nothing but unnecessarily re-allocate your assets to earn extra fees and commissions.

Instead, open a discount brokerage account for your S&P 500 Index, and a Treasury Direct Account for your short-term Treasury Bonds.  This way, you will end up paying $10 per year to re-allocate your assets, as opposed to hundreds or thousands of dollars with a broker or money manager.

Notice that your house is not included in this asset allocation model?  Housing has a historical inflation adjusted average annual return barely above 0%.  Read the 2nd article, Wall Street Asset Allocation Model, to learn why this is important and how it can affect your overall returns and retirement security.

Simply put, a house may be a nice place to live, but it is a lousy asset.  Owning real estate, reduces your overall returns, and could cause you to run out of savings during retirement.

So, there you have it, the best asset allocation model and strategy.  Unless you are a partner at Goldman Sachs, the chances are very high, that you will not beat this model by trying to time the market or by picking stocks yourself.  And, if you use a Wall Street mutual fund or money manager, the chances are very high that you will do worse than this model, and end up paying dearly in low returns and high commissions and fees.

Our Early Retirement Planning Software, enables you to track how your assets are allocated, to help you maintain a proper asset allocation.  Visit our Early Retirement website to learn more.

Also Read:
401k and Early Retirement
Should I Rent or Own a Home in Retirement
How to Save $1 Million
Why You Should Fire Your Financial Planner

In part 1 of Asset Allocation, I explained why properly allocating your assets is important, and critical to a successful retirement.  In part 3 of Asset Allocation, I will explain how you can cheaply and easily, beat 90% of all mutual funds.  In this article, I will describe how Wall Street not only rips you off using asset allocation, but also how their asset allocation model is dangerous for your retirement.

Several years ago, Wall Street figured out that asset allocation could be used to gain extra fees and commissions, and began creating and selling retirement target date funds or life cycle funds.   These funds are marketed, mainly to 401k participants, as an easy and automatic way of making sure your retirement assets are always properly allocated.  The idea behind these retirement target date funds is simple and logical.

The further you are away from retirement, the higher the percentage of your assets are placed into riskier higher return stocks funds, and as you get closer to your retirement target date, your retirement assets are moved into lower risk bond funds.  The advantage of these retirement target date funds is that you don’t have to worry that your investments are properly allocated.

The dis-advantage of retirement target date funds is that you are paying unnecessary fees and commission.  Every year, these funds re-balance your portfolio, and charge you for the favor.   Retirement target date funds do not beat a fixed allocation of 70% stocks and 30% bonds ( Journal of Financial Planning).  If you can re-balance your portfolio once a year yourself, maintaining a 70/30 mix of stocks and bonds (before and during retirement), you can avoid paying extra fees and commissions.

Although, Wall Street is using asset allocation to rip you off ( a few thousand dollars), that is not what makes their asset allocation model dangerous for your retirement.  What makes it dangerous for your retirement is that it does not include all of your assets – only your investments.  It does not include, perhaps your biggest asset, YOUR HOUSE.

What good is an asset allocation model that does not include all of your assets?  The answer is no good, even worse, the Wall Street asset allocation model places you at risk of running out of savings during retirement.  For most Americans, their house, represents 50% or more of their retirement assets.

The amount you can safely withdraw from your retirement savings each year, on average (depending on age at retirement) is 4% of your total assets, based on an allocation of 70% stocks and 30% bonds.  This asset allocation model has a historical after inflation annual average return of 9%.  And a 95% chance that you will NOT run out of savings during retirement.

The problem is that, in spite of the recent housing bubble, housing has a historical after inflation average return of slightly above 0% ( Robert Shiller Study).  If 50% of your assets is earning 0%, and the other half of your assets is averaging 9%, you are averaging 4.5% annual returns on your assets.  This does not include your other assets, such as cars, couches, and collectibles.  Most of which are assets that earn less than 0%.

In this scenario, you would be earning less than half the return you need on your assets, to maintain a safe and secure retirement.  In fact, the odds that you will run out of savings during retirement, is higher than 80%.   The Wall Street asset allocation model is a dangerous rip off.

A true and proper asset allocation model includes all of your assets – not just your investments.  In part 3 of Easy Asset Allocation, I will describe how to properly allocate your assets and beat 90% of all mutual funds.

Next: Best Asset Allocation Model

Note: Our Early Retirement Planning Software includes all of your assets, allowing you to examine how your assets are allocated, learn more about our Early Retirement Planning Software.

Also Read:
Should I Rent or Own a Home in Retirement?
How to Save $1 Million
Why You Should Not Retire With a Mortgage

Visit the Early Retirement Website, learn how to retire early, and try our free retirement calculators.

Asset allocation is one of the most important, misunderstood, and easiest parts of retirement planning. This three-part article will describe how, in less than 30 minutes and $30 per year, you can properly allocate your assets, and have your investments out-perform 90% of mutual funds.

First, before you learn how to easily and cheaply allocate your assets,   Easy Asset Allocation Part I explains what is asset allocation, how it works, and why it is important.

What is Asset Allocation?

Asset Allocation is 1) How everything you own (assets) is divided up (allocation).   2) The percentage of each asset class (stocks, bonds, cash, real estate) you own in relation to all your assets (net worth).

For instance, if your net worth is $100,000 and you have $4,000 in a checking account, $20,000 in bonds, $25,000 in stocks, $40,000 in real estate, and $11,000 in cars, couches and collectibles, your asset allocation would be:

Cash – 4%
Bonds- 20%
Stocks – 25%
Real Estate – 40%
Other – 11%

How Asset Allocation works

The goal of asset allocation is to have your assets allocated (divided up), in a mix of asset classes (diversification) that maximizes the return of your assets, while minimizing the risk to your net worth as a whole.

Each asset class (stocks, bonds, cash, real estate) have different historical rates of return, different degrees of risk, and behave differently in different economic circumstances.

For example stocks (S&P 500), which have a higher degree of investment risk, have a historical rate of return of 12%.   While bonds (U.S. Treasuries), which are a safer investment, have a historical return of 6%.  They also have an inverse relationship, meaning, when bonds go down stocks go up, and when bonds go up stocks go down.

If your assets are divided equally between stocks and bonds, when one of them is losing value, the other one is gaining value, and they balance each other out.   So, no matter which direction the economy is going, one of your assets will be doing well.   Real estate and cash, it should be mentioned, (adjusted for inflation) have a historical return of 0%.

Why Asset Allocation is Important

Failure to properly allocate your assets can lead to; not saving enough for retirement, losing your savings before retirement, not growing your savings enough to keep up with your spending in retirement, losing your savings during retirement.   Failure to properly allocate your assets, can force you to work longer than necessary, or force you to go back to work after you have retired.

Fortunately, properly allocating your assets is easy, cheap and quick.   Easy Asset Allocation Part II describes how to properly allocate your assets in less than 30 minutes for less than $30.   And, how you can beat 90% of all mutual funds and money managers, while giving yourself 90% odds that you will not run out of money during retirement.

Next: Wall Street Asset Allocation – Dangerous Rip-Off

Also Read:
Asset Allocation and your House
Rent or Own a Home in Retirement
Free Retirement Calculators

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!