Why Is Good Asset Allocation Vital for Everyone?

It is incredible how much learning I can do in my car as I travel around the West Australian countryside. A trip to and from my home town Bunbury to Perth results in 4 hours of education. I've never enjoyed traveling so much. I must admit I can't do this when my family is in the car though!

I just had to share what Anthony Robbins taught me on my last trip. I always knew that I should be paying myself first and that a minimum of 10% should be taken out of my earnings and saved. But I guess I'm like most people in that if I have savings I want to get the best possible return from it, for obvious reasons.

Anthony teaches to take out 10% of your earnings, as they go into your bank account for investing. That's before you've paid any bills... to satisfy the "pay yourself first" rule.

The 10% should be divided into 2 buckets, a security bucket and a growth bucket. The ratio of this division should be about 60/40. 60% into your security bucket and 40% into your growth bucket. This ratio is dependant on your age and how risk adverse you are. But as an absolute minimum 30% must go into your security bucket.

The money in your security bucket then gets invested in secure, low risk investments that may include your own house, bonds, term deposits or any managed funds with a low risk. This bucket benefits from compounding over time and shouldn't be touched until you retire.

The money in your growth bucket is invested in higher risk investments, like share trading, property investing and business. Basically you are trying to gain that 100% or more growth per year. However once profits are generated in this bucket, a third of the profit is to be taken out and put in the security bucket and another third into a Toys bucket, while the last third is re-invested in this bucket.

The toys bucket is what pays for that new car, TV, etc.

It's a great concept and one I've implemented straight away. Now if you are like I was, you're probably thinking that the return on the security bucket will only be about 4 or 5%, so why bother. Well Anthony has a few testimonials why this is so incredibly important. Basically it is to create security, as the bucket is named, as very often we invest aggressively and get too big for our boots. It saves us from losing absolutely everything in those times when the market turns abruptly... and it does happen, whether you are in shares, property or business. Ask me, I know!

The power of compounding is amazing. I look forward to your comments...