What to Consider When Determining Your Ideal Investment Allocation

June 13, 2022

What is an investment allocation? The decision about how much of your investment accounts is allocated to risky vs. non-risky holdings, and the biggest determinant of investment growth over time.

Here are five considerations when determining your ideal investment allocation.

1. When will you need the money?

Simple question – complicated answer. If we knew exactly when we would need the money we are investing, this process would be easy. However, life doesn’t work that way. The best way to think about this is in buckets. Will I need this money in 6-12 months, 12-60 months, 60-120 months, or not anytime soon? It can be eye opening to go through this process and is the most important factor in determining your ideal investment allocation. 

2. Have you experienced a downturn before?

How did you react to it? Past performance may not be indicative of future returns, but past action IS indicative of future actions. Ask yourself the following questions: Did I react the last time my investment accounts lost money? Was that reaction to invest more or sell to prevent additional losses? Did I work with an advisor at the time to coach me through the downturn? If not, would having one now help me to stay disciplined? How much were my assets worth the last time I experienced losses? Ask yourself these questions - or even better, ask your PARTNER to describe your behavior during the most recent downturn!

3. Do you have an emergency fund?

This is the equivalent of having veggies on your plate every night for dinner – a great idea although not the most passion inducing activity. Emergency funds will get your through the inevitable car repair, AC replacement, healthcare deductibles, etc. 

4. Will you be making regular deposits into or withdrawals from your investment accounts?

If making deposits, you can likely have a higher allocation to risk assets as downturns present opportunities to buy at a discount to recent prices and you have no plans to sell nor need the money. If your assets are being utilized to meet your spending needs, downturns aren’t as enjoyable to go through and having stable assets (short-term fixed income) that can meet your spending needs for at least two years (and preferably 4-5 years) is vital. This in and of itself is likely to allow you to “back into” the right allocation. 

5. Any other big life events?

Buying a home/having a child/caring for an aging parent? If you can accomplish any of these three items financially, consider yourself blessed. Don’t take that blessing for granted and be sure to plan for these possibilities.  

Want to learn more about determining your ideal asset allocation? Schedule a call with us. 


This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.

Frankly Finances is a registered investment advisor with the state of Florida and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Registration does not imply a certain level of skill or training. Please refer to our Form ADV Part 2A disclosure brochure for additional information regarding the qualifications and business practices of Frankly Finances.

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