Should I change my asset allocation strategy?

I am approaching 50 years old, single, and have about $2,000,000 in total assets ($1,000,000 in a 401(k), $500,000 in cash, and $500,000 in stocks). I don't own a home but plan on buying one within the next couple of years. My monthly expenses are about $10,000 but if needed I could cut down to about $7,000. I have no debt. I am employed in a good position. Given all of this information, how well-positioned am I for the future? Should I be doing anything different with my asset allocation strategy?

 Co-Published on Investopedia

Co-Published on Investopedia

Although I cannot identify a specific asset allocation without doing a lot more analysis and knowing what your current asset allocation is, my general comment are below. You may want to consider hiring a fiduciary and fee-only financial adviser just to go over the details of your current asset allocation and provide you with more personalized projections based on your actual portfolio. 

You seem to be positioned well for the future. In fact, you seem to be positioned quite well. A $2,000,000 portfolio should be able to provide you with a monthly cash-flow in retirement of between $5,000 and $7,000. You also have another 10+ years to retirement, meaning with continued growth you should be able to replace your income.

The $500,000 in cash seems high to me. I'll assume you are going to use $200,000 for the home down payment/purchase. You would still want another $50,000 to $100,000 in cash for an emergency fund and for liquidity (the exact amount would depend on your circumstances). You may also want to keep around $50,000 to make improvements to the home or other surprise maintenance issues. Together, these near-term cash needs only total $350,000 on the high end. Figure out how much cash you need in the near term and consider putting the rest of the cash into stocks or bonds. If you aren't currently maxing out your 401(k) at work, consider putting the cash there (up to $18,500 this year). This will allow you to invest the money, and receive a tax deduction.

Regarding your asset allocation strategy, it's hard to tell without knowing what your 401(k) is invested in. I'll assume you are likely in an age-weighted retirement fund, which would likely have you with 40% to 50% in bonds. The portfolio of an age-weighted fund is rarely correct for the individual investor, though.

Age-weighted funds are great for beginner do-it-yourself portfolio as they automatically do the things an adviser would do to keep your asset allocation appropriate. Unfortunately, they don't know your personal financial situation and risk tolerance, so they can't manage your money the way an adviser would, which is according to your own unique needs.


Joshua Escalante Troesh is the President of Purposeful Strategic Partners and a tenured professor of Business at El Camino College. To explore working with him on your personal financial planning and investment advising needs, simply schedule a free Discover Meeting.


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