It's an investment strategy...one that favors low risk. That is, the goal in preserving capital starts with the ethos "Don't lose the money I just gave you." The hard part: preserving capital (i.e. taking low risk), but also beating inflation, and gaining enough to have the investment work for you, i.e. grow on both real and nominal terms.
So what do you own in a preserve-capital mode? Well, you start with cash. Not in a mattress, but in a money market fund. Then you move on to mid-term U.S. Government bonds. Mmmmaaaaaybe you buy a few equities, but low multiple stalwarts with fat dividends. And not much else. You won't be a hero investing this way...but you won't go bust either.
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Finance: What is a Strategic Asset Alloc...6 Views
finance a la shmoop what is strategic asset allocation all right well it's
being smart investing wisely diversifying betting on tailwind and [Pie chart showing portfolio areas]
avoiding headwinds and that's about it that's what the way cooler and fancier [Definition of strategic asset allocation]
sounding strategic asset allocation term actually means
yeah strategic so what does that imply well think about it in context if you're
92 years old and you have 300 grand your name and you're still able to run a 20 [Old guy holding stacks of money]
minute mile well then you can't risk investing in equities at least not all
your money in them in the short run they're way too volatile they go up [Value of equities going up and down]
there to go down they go sideways they go bankrupt and it's likely that your
remaining run is well short you'll need the money so you can't handle the risk [Gravestone for the old guy]
of equities dropping if 40% in value over a two-year period which seems to [40% drop shown on the chart]
happen to them every decade or two instead you need to be strategic about
the dough and the time you have left and if you're 19 and you just inherited dear [Clock ticking]
old uncle Earl's oil fortune he calls it Earl over very long periods of time the [Kid walks up to a vault full of money]
market has historically gone up and about 8 9 10 percent a year or something
like that and especially given that you don't need the money today
well you strategically almost can't afford to not be invested in equities ie [Kid holding bags of cash]
the stock market no reason to hold almost any bonds at this stage in your [Kid throwing the bonds into the bin]
life you don't need the cash you don't need the safety you don't need the
liquidity because your timeline there is endless like you probably have half a
century or more before you even begin to feel old being strategic about your
investing at this stage is the difference in compounding over say a 50
plus year period at only four or five percent or eight nine ten maybe twelve [Graph showing balances after different compound interest rates]
percent if you get a little bit lucky and at the very end when Kingdom Come
comes well the winner as you know is the one who can buy the most toys [Angel rescues rich kid]
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