Asset Allocation or Fine Tuning Stage

By Francisco J. Colayco, Ph.D

The third stage in your financial life is when you have more savings and investments to work on for asset allocation and fine-tuning. At this stage, a good portion, about thirty to sixty percent (30-60%) of your income is being provided by your savings and investments. As in the Build-Up Stage we talked about in the previous column, you are just making an estimate for your information and to know how much faster you have to grow to reach your retirement stage goal. You should have a personal financial plan, which includes your Statement of Assets and Liabilities (SAL) to confirm the stage you are in. On the basis of that plan, you will know that you are moving forward and how fast that movement is.

Actually, it is easier to know that you are in this stage. You are usually more comfortable and feeling like you can indulge in your wants. Precisely because you think you can afford your wants, it is easy to backslide. If your investments have given you good returns, you could start thinking that you have saved enough and that you should start enjoying some of it while you are still young. Be extra careful about these thoughts. Emergencies and economic problems do occur and unless you are way above your financial and/or retirement goals, it will be very difficult for you to recover when they actually strike, specially if you are already more advanced in age.

Some people are lucky to be in this Asset Allocation Stage without passing through the Start up and Build up stage. They must have received their money through inheritance or some windfall investment. Not having gone through the hardship of building up savings, it is even more difficult for them to remember to take care of their investments. Try to limit your expenses to your Active Income so that you can more easily reach your retirement goals. If you feel you deserve to satisfy some of your Wants, you should use only the passive income or income from your investments for this purpose.

If you have not been allocating your investments yet, this is the stage to make sure that your investments are spread out to minimize your risks. If you are nearing your retirement age, you cannot afford to make big mistakes because there will be less time to make up for them.

The next stage in the Retirement Stage and in the next columns, we will discuss how you can help your aging parents or yourselves if you are in the aging stage.