Could you receive an inheritance? Certain experts claim that obtaining inherited funds is now the primary method for accumulating wealth. While receiving an inheritance would certainly be beneficial, there might also be alternative scenarios where you could acquire some unforeseen cash, like getting a performance-based bonus at your job or perhaps selling a vehicle.
In his book, Money: Master the Game In his book, Tony Robbins poses a thought experiment: If you received an unforeseen windfall of either a $10,000 bonus or a $100,000 inheritance, how would you allocate these funds? Would you consider depositing them into your Individual Retirement Account (IRA)? Or perhaps indulge in a trip to Las Vegas and bet everything on black? Alternatively, might you use this money to purchase stocks from The Magnificent Seven corporations?
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He inquires whether you would keep it all in one location or distribute it." According to Robbins, "The response to this final query holds the secret to securing your financial future.
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Robbins contends that asset allocation stands as the paramount investment choice an individual will ever make throughout their life. Ideally, you would have already decided to do this. automate your savings and investment processes By consistently contributing to your IRAs and 401(k), you “get into the game,” as Robbins puts it. The next step is to remain committed over the long term.
He warns, 'If you're not cautious with where you invest your funds, you could end up losing everything.' He emphasizes that asset allocation is key to maintaining wealth.
Tony Robbins discusses asset distribution.
Asset allocation goes beyond mere diversification. As Robbins puts it, "This process involves distributing your funds across various categories of assets—such as equities, fixed-income securities, raw materials, or property—and doing so in predetermined ratios based on factors including your objectives, risk capacity, and lifecycle phase."
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Regardless of whether you have $1,000 or $1 million to invest, the core concepts remain unchanged, notes Robbins. He states, " Asset allocation is also the single most important factor that can distinguish you from ninety-nine percent of all investors," and he continues, "And get this: it won’t cost you anything at all."
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At its most fundamental, asset allocation means not putting all your eggs in one basket. It means, Robbins says bluntly, "diversify or die."
Asset allocation divided between two asset baskets
Every fund should come with varying degrees of risk and return. One option is quite secure, leading to slower growth of your funds. Another choice allows for quicker expansion but at the cost of increased risk.
The security/ peace-of-mind asset portfolio
The amount you put into this category consists of cash or assets easily converted to cash. According to Robbins, this component acts as the methodical yet consistent competitor in the journey toward accumulating riches. Within this section might be found not only cash itself, but also financial instruments like money-market accounts, various bond types, certificates of deposit (CDs), residential properties, pensions (should you happen to possess one), annuity plans, life insurance policies, and “structured notes” akin to CDs. Certain kinds of these structured notes come with safeguards ensuring protection for your initial capital; thus, they prevent losses from occurring. It’s precisely this kind of secure structured note that should occupy space within your protective portfolio.
The risk/growth asset basket
Robbins states, “This is what everyone aspires to be part of due to its allure and excitement.” While you might achieve greater returns here, there’s also the risk of losing every penny you’ve saved and invested. He adds, “Whatever funds you allocate should be money you’re ready to potentially lose some—or even all—of unless you have safeguards in place.”
Robbins points out that markets experience both upward swings and downward turns.
As mentioned, there are seven assets that can be included in this portfolio: stocks, high-yield bonds, real estate (excluding your primary residence), commodities, currencies, collectibles, and structured notes. It’s important to remember that the structured notes intended for the growth portion of the portfolio might lack the safeguards provided by those placed in the safety segment, hence ensuring clarity about their distinctions would be prudent.
Robbins states that there isn’t a magical method for dividing your investments into two categories. Some individuals might allocate 30% to the safety/comfort category and 70% to the volatility/expansion category, while others could opt for ratios like 60/40 or 50/50. The key factor is identifying what balances your fiscal and psychological requirements effectively.
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