Asset Allocation

Asset Allocation Map^TM – The Three Layers of Capital Allocation Goals

Layer #1: Preservation Objective: Capital Preservation. Safety and Security are primary concerns. Goal is to safely earn a positive return after effects of taxes and inflation. Layer #2: Cash Flow Objective: Income Replacement. Goal is to have multiple sources (pipelines) of consistent income (preferably tax advantaged, passive residual income) without undue risk. Layer #3: Growth Objective: Capital Gain. Goal is to balance potential for extraordinary gain and risk of loss, maximizing potential gain while reducing risk. “Buy low, sell high” (potentially speculative) investments.

• This map (and the 3 layers) deals with investable capital only. It does not include money set aside for day-to-day living expenses or emergency reserves, although some investments can provide liquidity in addition to meeting the goals in one or more layers.
• A particular investment vehicle can fit into (possess characteristics of) one or more layers.
• We believe everyone should have coverage in all 3 layers. The amount of coverage can vary based on life goals.
• Generally, an investor should seek coverage in Layer #1 before Layer #2, and then finally Layer #3.
• Both long and short-term investments can fit into any layer, depending on the investor’s particular needs and goals.