Investor Column | The right asset allocation could help your money survive the coronavirus

The coronavirus has made investing challenging and the markets volatile. The concept of asset allocation may prove helpful.

It is simply how you allocate your assets at any given moment, usually expressed in percentages and a ratio.

This is a hypothetical example. Start with a portfolio of mutual funds to illustrate the concept of asset allocation. You could have any portfolio of individual stocks, Exchange Traded Funds, tax free municipal bonds, real estate, annuities, etc., that make up your assets.

Suppose you start with the strategy of a balanced portfolio. Call it 60% stock mutual funds for growth and 40% bond mutual funds for income. This concept forms a 60%/40% ratio used to show how 100% of assets are allocated in this hypothetical example.

An unexpected event happens and the market starts to radically change. You and your financial advisor decide to be a little more conservative.

Your portfolio is adjusted to be 40% stock mutual funds/60% bond mutual funds (40%/60%). Call it a conservative balanced portfolio for this hypothetical example .

The manager of your portfolio adjusts the new portfolio by selling some stock funds and buying more bond funds.

As time goes on, the decision is made to move to a more conservative portfolio of 20%/80%.

Time passes and the markets starts to stability and are less threatening. The stock market starts going up and you become comfortable with more risk.

The decision is made to move back to a conservative balanced (40%/60%). More time passes and the decision is now to move to balanced (60%/40%), then later on balanced with growth (80%/20%).

Finally, the last stop is considered the most risky portfolio. It is defined as growth, 100% stock/0% bonds which is the most aggressive.

By adjusting the ratio between equity and bonds, you adjust the risk you are comfortable taking. You may not get the maximum return at a conservative 20%/80%, but you are potentially decreasing the volatility of your investment.

Suppose you feel that placing all your eggs in one basket is not a good strategy. No problem.

How about leaving 3/4 of your portfolio in balanced (60%/40%) and 1/4 in growth (100%/0%) or any strategy you feel comfortable with. All of the portfolios described in this example show how flexible anyone’s situation can be and how a financial advisor can help put a plan in place.

If your accounts are tax-deferred, like an IRA, there are no taxes involved in making these strategic adjustments. Check with your tax advisor as I do not give tax advice.

If your accounts are in your name, joint name, trust, etc, there may be tax consequences. However, the important consideration is saving your assets; you might need them later.

Asset allocation can be thought as a stagnant arrangement. You are balanced at 60%/40% and that is that, but no. Asset allocation is a flexible investment concept used by some financial advisors with their clients on an as-needed basis.

There is not a strict schedule of a daily/weekly/monthly adjustment because everyone’s situation is different.

Don’t overreact to every social media report or claim. Be reasonable and rely on your financial advisor for guidance.

Carefully make adjustments when current times dictate and remain calm going into the fuzzy future.

Jim Zientara is a Financial Planner with Raymond James Financial Services, Inc. Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services Inc. Member FINRA/SIPC. He can be reached at 941-750-6818 or at www.raymondjames.com/jz with office at 11009 Gatewood Drive, Suite 101, Lakewood Ranch 34211. Any opinions are those of Jim Zientara and not necessarily those of Raymond James.