In the last few years, when clients asked, “Wheres all my money,” the question was open to different interpretations. It could have meant, “How did I manage to lose much of what I had accumulated in my company 401(k)?” Or it could have meant, “Wheres all the money that was in my variable annuity?”

Until recent months, when some people began to recoup some of their paper financial losses, one answer the advisor could give was that the value of all financial products tied to the stock market was down, and down considerably.

But there are other answers that arent so obvious. Most investment experts say that asset allocation is the key to stabilizing ones investment account values.

Everybody knows now that investment accounts that were allocated primarily to technology stocks or technology mutual funds had the biggest losses. How would asset allocation have helped avoid that trap? Its all about not putting the clients financial eggs in one basket, in this case, the technology basket.

Even though the financial services industry has promoted asset allocation for several years, a surprising number of people have never done a formal asset allocation.

Instead, they have divided their 401(k), IRA or VA contributions evenly between the investment options offered to them, or simply chosen one of the investment funds because it had the highest return in the past year. The former “approach” would have been safer than the latter because the investors choices would at least have been spread across a range of investment types.

The “accidental” asset allocation achieved by that approach might not have been the best one for a particular individual, but at least all of the eggs would not have been in one basket.

However, theres no need for anyones asset allocation to be an “accident!” Not only should all investors perform an asset allocation, they also need to review periodically how they have their assets allocated.

At different stages in life, investors have different needs.

Perhaps the simplest approach to asset allocation is for your client to choose a “lifestyle” fund.

For example, many VAs offer several subaccounts that have built-in asset allocations appropriate for persons at certain life stages. A 25-year-old might choose a lifestyle fund that has an allocation of 80% stock, 15% bonds and 5% money markets. But a 70-year-old retiree might choose a lifestyle fund with 20% in stocks, 50% in bonds and 30% in cash or money markets.

Older investors typically need to draw from their investments, so they need a larger percentage of their investments in subaccounts whose value fluctuates minimally.

Of course, your clientson their own or with your helpcan also decide to choose several different VA subaccounts, to accomplish their own asset allocations.

For clients who are comfortable with the Internet, many financial services companies provide financial planning and asset allocation tools on their Web sites. For those who prefer to work “offline,” many money management software programs allow users to do financial planning, including asset allocations for investments.

Whatever asset allocation tools your clients decide to use, encourage them to take the time to perform what is probably the most important step necessary to achieving their investment goals.

With your help, they can make sound decisions that are appropriate for their stage in life. They will no longer be asking themselves–or you–”Wheres all my money?”

Kristen L. Falk, FLMI, AAPA, ACS, AIAA, AIRC, ARA, is a senior writer with LOMA in Atlanta, specializing in annuities and financial planning. Her e-mail is: falk@loma.org.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 3, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.