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Deciding how to allocate net worth

On building a net worth that is well diversified and encompasses all asset classes.


Real estate is a much-loved investment in Bermuda and over the course of the last thirty years has rewarded home owners substantially as property values have increased. The stock market has delivered significant returns to investors as well during the same period.

The real estate vs. stock market debate has been argued on both sides for years. Property owners often argue that property is the way to go, especially when you consider that for most, your great asset is your home. Financial advisors generally argue that stocks, bonds and mutual funds held long term will provide the financial freedom that many people are looking for.

Firstly and most importantly, it not about choosing one or the other. The goal for most of us should be to build a net worth that is well diversified and encompasses all asset classes.

When you are young, investing should be for the long haul; retirement may be 35 to 40 years away so taking more risk ought to provide more reward. At the same time you should be building an emergency fund and saving for a down payment on a home.

The key, as you build your wealth, is to diversify your savings and investments. Great ways to start, begin with a savings account, additional voluntary contributions to your company pension plan and an investment account to which you dedicate a specific monthly amount.

As you get older, how your assets are allocated should begin to change. You might be fortunate enough to have paid off your home, saved up a significant amount within your pension and have some investment accounts. The closer you get towards retirement the shorter your time horizon is and the preservation of the capital you have accumulated becomes far more important than speculating on riskier asset classes.

Here in Bermuda we do have some differences to other First World countries and one of them is the higher cost of real estate. This means when we look at our net worth and how our assets are allocated you will probably find a higher percentage appearing in real estate. With that being said, does the asset generate a rental income? Do you intend to downsize at retirement, thereby freeing up some equity?

I have been asked this question a lot of times: “What percentage of my net worth should be in the stock market?” Well, a rule of thumb used by some people to answer this question is to take the number 100 and subtract your age to determine a suitable percentage. The resulting number is not a perfect science by any means and there are several factors that go into determining the ‘right’ answer. A financial advisor can help you determine the appropriate percentage for you.

The concept of asset allocation isn’t just about percentages and asset classes, it’s about strategically reducing the risk of our investments as we get older to create more liquidity and preservation of the money we have worked so hard to save.

It is about addressing what to do with your greatest asset which is likely to be your home. Should you build an apartment and become a landlord or sell your home and buy a smaller home or condo to reduce the amount of time and money it takes to keep up with a larger homestead?

Make sure when you are making decisions about your net worth asset allocation to take into account your entire net worth: your home, other real estate holdings, investments, life insurance cash values, bank accounts and pension holdings.

We can’t control the markets or their performance nor can we predict the value of our home, but what we can manage effectively is how well diversified our net worth will be.

Article published in Bernews, May 16, 2016

Contact Carla

Freisenbruch Meyer Group staff photo: Carla Seely

Carla Seely

VP, Pensions, Life and Investments

Tel: 297-8686
Contact Carla

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