Asset management goes beyond a good static rule; it requires adaptability, constant monitoring and an understanding that price and value are two very different things.
Last time we saw that dividing your assets following the 40-30-20-10 rule could be a start to rationally structuring your assets, but the challenge that began with creating your investment pyramid must continue: it is necessary to maintain it over time and adapt it to the changing circumstances of life.
So what’s the next step?
See how close or far your wealth is from this tiered structure and ask yourself the key questions.
Are you far from this setup? Why? Is it a question of previous habits? Of the case? About your fear of addressing certain topics? Or do you have special needs and it is therefore a choice?
When you have given yourself an answer and decided which structure suits you, focus on the tools you want to use for your investments.
In order of preference, I suggest stocks and bond ETFs as the first choice, followed by more expensive mutual funds. Leave out other banking and insurance products because in my experience they are even less advantageous than funds.
Annual adaptation and review is essential. Monitor the growth of your assets and make any necessary adjustments to the various sectors. But also know that rebalancing the sectors is not enough. You also need to evaluate the performance of each sector to understand if you are making mistakes and take advantage of emerging opportunities. A practical example: if you had a lot of China in your portfolio this year you probably had a bad stock performance. How do you plan to provide? Do you hold on? Do you wait and hope?
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Trading and the danger of emotions
It is also common to make emotional investing mistakes, such as buying and selling impulsively. This often happens when there is a lack of a clear understanding of personal goals. Some investors, for example, may enjoy the volatility of the market, but typically, those who venture into trading risk achieving lower returns than those who buy and hold.
Suppose volatility is not to your liking and you prefer long-term investments. In that case, real estate seems to be an ideal choice from the point of view of emotional tranquility. However, real estate has several disadvantages, including the real estate funnel trap I’ve been talking about for years. Furthermore, too many properties can become a burden on the family unit, draining liquidity and becoming difficult to manage, especially as people age.
Here I will not discuss the issue of the risks that a family unit runs if there is a single income earner or the disputes that can arise in the event of a second marriage of the head of the family. But I did it recently and therefore I invite you to look for the information I have already released.
In conclusion, the careful management of assets goes beyond a good static rule; it requires adaptability, constant monitoring, and a thorough understanding that price and value are two very different things. But we don’t always realize this (in time).
It is curious then that in case of a doubt about health, we all recommend a second medical consultation even for a fee, while in the finance sector for the simple fact that we do not see the risk - until it is too late - we end up with ’get lazy and accept the interested advice of the seller who has team orders and budget to make.
Original article published on Money.it Italy 2024-01-15 07:00:00. Original title: La regola del 10-20-30-40: accorgimenti per metterla in pratica
