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Finance: What is a Strategic Asset Allocation? 6 Views
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Description:
Strategic asset allocation means allocating your assets...strategically. Yup, no crazy plot twists here.
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Transcript
- 00:00
finance a la shmoop what is strategic asset allocation all right well it's
- 00:08
being smart investing wisely diversifying betting on tailwind and [Pie chart showing portfolio areas]
- 00:13
avoiding headwinds and that's about it that's what the way cooler and fancier [Definition of strategic asset allocation]
- 00:18
sounding strategic asset allocation term actually means
- 00:22
yeah strategic so what does that imply well think about it in context if you're
Full Transcript
- 00:27
92 years old and you have 300 grand your name and you're still able to run a 20 [Old guy holding stacks of money]
- 00:32
minute mile well then you can't risk investing in equities at least not all
- 00:37
your money in them in the short run they're way too volatile they go up [Value of equities going up and down]
- 00:40
there to go down they go sideways they go bankrupt and it's likely that your
- 00:43
remaining run is well short you'll need the money so you can't handle the risk [Gravestone for the old guy]
- 00:48
of equities dropping if 40% in value over a two-year period which seems to [40% drop shown on the chart]
- 00:53
happen to them every decade or two instead you need to be strategic about
- 00:58
the dough and the time you have left and if you're 19 and you just inherited dear [Clock ticking]
- 01:03
old uncle Earl's oil fortune he calls it Earl over very long periods of time the [Kid walks up to a vault full of money]
- 01:09
market has historically gone up and about 8 9 10 percent a year or something
- 01:13
like that and especially given that you don't need the money today
- 01:16
well you strategically almost can't afford to not be invested in equities ie [Kid holding bags of cash]
- 01:23
the stock market no reason to hold almost any bonds at this stage in your [Kid throwing the bonds into the bin]
- 01:26
life you don't need the cash you don't need the safety you don't need the
- 01:30
liquidity because your timeline there is endless like you probably have half a
- 01:34
century or more before you even begin to feel old being strategic about your
- 01:38
investing at this stage is the difference in compounding over say a 50
- 01:42
plus year period at only four or five percent or eight nine ten maybe twelve [Graph showing balances after different compound interest rates]
- 01:47
percent if you get a little bit lucky and at the very end when Kingdom Come
- 01:51
comes well the winner as you know is the one who can buy the most toys [Angel rescues rich kid]
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