The proper asset allocation is one of the most important decisions that you can make when dealing with your stash. Unfortunately, the ideas about the proper asset mix range from people like Peter Lynch who would say that you just stay 100% in stocks all the time, to people who avidly listen to Rush Limbaugh, many of whom I assume have taken their savings out of the market and invested heavily in gold. That assumption is based entirely on the commercials I heard when I stopped on his show for ten minutes once when driving. Therefore, I'm sure that it's 100% accurate.
I believe the more conventional idea that most people should have some mix of stocks, bonds, and cash. To illustrate my point, I'm going to use my wife's family as an example. Not so much their financial situation, but the life situation of some of her siblings.
First, my sister-in-law just got her mission call (huzzah!) to Taiwan. It will probably be a crazy ride. Weird, unexpected things will happen. It will probably the very stressful until she adjusts. The reward for all of this will be exponential growth. I'm not one of those who believes the stupid idea that a mission is the best two years of your life, or even the hardest two years of your life, but missions do a fantastic job of preparing you to meet later challenges.This to me is analogous to investing in the stock market. You get the expectation (over a long timeframe it's a near certainty) of fantastic growth, but there are a lot of ups and downs along the way. Stocks are the thing that does the heavy lifting in your portfolio.
My first brother-in-law is doing a degree at BYU. He's changed his major once or twice, but no matter what he does, as long as he finishes he'll get a degree in a relatively useful field (this doesn't apply to everyone...myself for instance). He'll have some growth, but not as much as a missionary. The main thing here is that he invests a certain amount of money and work for a virtually guaranteed reward (a degree). This is like bond investing. You're not going to hit it out of the park with bonds. The goal with bond investing is a predictable return and safety of principle They reduce your portfolio's volatility and act as a hedge against deflation.
Finally my second brother-in-law basically finished his degree at BYU, but didn't apply for graduation yet, so that he can take a few extra classes and (I assume) figure out what he wants to do with his life. I don't think he has been working much, and he definitely hasn't settled in to a career path. He's not married, not dating anyone seriously (that I know of), and basically still in the process of figuring out what he wants out of life. But when my wife got sick and we needed a lot of help around the house, which of the three siblings do you think was the first one to come and stay with us? Which one was the first person to make sure our house kept on running smoothly when everything was falling apart? This brother-in-law is like having cash on hand. You won't see the same growth the you will from the other two investments, but cash is there when you need it. When everything falls apart in your life (and believe me it will at some point), you want to have some cash on hand to make sure that you're not completely derailed.
So there you have it. Three siblings, three investments. If you haven't looked in a while, maybe it's time to check on your asset allocation.
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