Where do you invest your travel savings when you’re accumulating money for a big trip? How do you invest and draw down on it while you’re on the road? And what about other savings, like retirement, or the proceeds of the sale of your house?
Welcome to the wonderful world of asset allocation.
There is no template answer to these questions. Your personal asset allocation plan depends on your age, time frame, goals, income needs, and stomach for volatility. And depending on your goals (you can have multiple investment goals, independent of one another), you might have different asset allocation plans for different investments.
Here is my asset allocation plan:
Travel Savings: “Cash”
Household Sale Proceeds: Moderate Conservative
I initially invested the proceeds from selling everything I owned in a Conservative account, so that I’d have the money available to me whenever I wanted to set up a place again. But a few years into my full-time travels, I realized I wouldn’t likely be “settling down” any time soon, so I increased the risk profile of the account to Moderate Conservative to take advantage of some potentially higher growth.
Retirement Savings: Aggressive
All of my working life before I started traveling full-time, I saved a percentage of my pay for retirement. Although I joke that I “retired” at the age of 30 to pursue my full-time travel dreams, this money remains tucked away for a time when I’m unable (or unwilling) to work or earn an income.
I have some registered (called RRSPs in Canada) and non-registered money invested under the retirement umbrella, but since I anticipate my golden years are a few decades away yet, I’ve invested it aggressively to take advantage of long-term average returns (despite short-term fluctuations).
If you’re not sure what constitutes various investment profiles like “aggressive” or “moderate conservative”, check out the link below for a comprehensive introduction to Asset Allocation, along with some profile examples so you can figure out where you fit into the mix.