VeriPlan Personal Financial Planning

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Asset Allocation Calculator

Understand how your lifetime investment asset allocation strategy would affect the growth of your financial asset portfolio

Your tolerance for investment risk is a relative concept — rather than an absolute concept. Your tolerance for investment risk is relative to the investment risk tolerance of all other investors. Few people like investment risk, but some can handle it better than others can.

The more “sensible” investment risk you are willing and able tolerate, the higher your potential expected investment returns and investment growth. At the same time, the investment road you take might be rougher. Sensible investment risk means investment risks that securities markets have compensated with “risk premiums” in the past and which have been verified in the objective investment research literature.

Sensible investment risks are not infinite. They are bounded by the risks that other sane investors are willing to shoulder. Furthermore, they are bounded by the fact that you would only lose up to your entire investment in the pursuit of higher investment yields and capital growth. (Incidentally, sensible investment risks do not include debt leveraged investments, certain options, and exotic investment contracts that can multiply your potential liabilities far beyond your original investment. Leave that to hedge funds playing with other people’s money and huge, irresponsible banks backstopped by taxpayers. They have demonstrated a particular competence for shooting themselves and the public in the foot simultaneously.)

Securities markets tend to pay an investment “risk premium” only for shouldering investment risks at the market level. The cash, bond, and stock financial asset classes have different expected risk and return characteristics. Financial asset allocation is the apportionment of your investment portfolio into one or more of these classes of market-traded financial assets. How you allocate major portions of your assets among the primary financial asset classes determines your portfolio’s overall exposure to investment risk and thus your potential for investment growth.

Align the risk and return of your financial portfolio with your personal investment risk tolerance

VeriPlan’s automated asset allocation calculator tools help you to align the risk and return of your financial portfolio with your personal tolerance for investment risk. VeriPlan’s integrated financial investment calculator and saving for retirement calculator software provides an easy-to-use asset allocation calculator tool, which includes five user-selectable and user-adjustable asset allocation methods. Each of these asset allocation methods provides automatic annual portfolio rebalancing.

VeriPlan’s five fully automated, compound investment calculator asset allocation projection methods include:

  • Level or constant lifetime asset allocation percentages for the cash, bond, and stock financial asset classes, including:
    • Constant lifetime asset allocation percentages using the proportions of your currently held financial asset portfolio
    • Constant lifetime asset allocation percentages representative of an investor with an average investment risk tolerance
    • Constant lifetime asset allocation percentages using any percentage for each of the financial asset classes
  • Variable lifetime asset allocation percentages for the cash, bond, and stock financial asset classes, including:
    • A declining lifetime percentage allocation to stock or equity assets and an increasing allocation to bonds or fixed income assets with a constant percentage of cash assets. (This is the method illustrated in the graphic below.)
    • A declining lifetime percentage allocation to stock or equity assets with and an increasing allocation to both bonds and cash. A constant ratio between cash asset and bond asset percentages is maintained.

These five asset allocation methods give you unprecedented flexibility in your personal financial planning. The VeriPlan asset allocation calculator tool allows you to analyze a wide variety of asset allocation strategies for your lifetime through its easy-to-use:

  • cash savings investment calculator,
  • bond investment calculator,
  • stock investment calculator,
  • mutual fund investment calculator,
  • 401k investment calculator,
  • IRA investment calculator, and
  • Roth IRA investment calculator software features.

The fully integrated and automated VeriPlan future value investment calculator enables you to choose the lifetime and retirement investment strategy that matches your preferences for investment risk and return on investment. Within the context of your particular financial circumstances, the VeriPlan retirement investment calculator can give you a much better understanding of the interplay between investment risk and investment growth projected out over your lifetime.

This is an example of the lifetime asset allocation percentage graphic that VeriPlan automatically generates for all projection scenarios that you might wish to develop. In this case, the user has chosen to maintain a fixed 10% lifetime cash asset allocation. The remaining 90% is allocated to bonds and stocks. Initially, 80% is the stock asset allocation and 10% is the bond allocation. Over this person’s projected lifetime, the bond asset allocation percentage will rise as the equity asset allocation percentage falls.

Financial Investment Calculator

VeriPlan’s asset allocation calculator functions perform an automatic asset allocation rebalancing process at the beginning of the second and all subsequent projection years. Note that the percentages in this graphic are not inputs to the model. Instead, these percentages are lifetime model outputs which are calculated directly from projected assets in the major asset classes each year after annual rebalancing has been performed. They represent automatically rebalanced asset class holdings across your projected lifetime taxable account assets, traditional tax-advantaged retirement account assets, and Roth retirement account assets.

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Asset Allocation Calculator
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