Why Not Give Your Finances a Once-Over?

If you are bent on improving the state of your finances in 1994 but unsure where to begin, consider giving yourself an asset-allocation review.

The very phrase has a solemn, professional money-manager ring to it. Yet it isn’t a big deal to undertake.

In fact, it can be a natural adjunct to your personal balance sheet--a tally of assets and liabilities that is highly recommended every year or so.

The idea is simply to figure out where your savings and investments are deployed among the three main categories of financial vehicles--short-term money market securities, long-term bonds and other fixed-income investments, and equities such as stocks and stock mutual funds.

Then you can compare the relative amounts you have in each category to a recommended model for a person in your age bracket and living situation, and see whether some changes might be in order.

“Because both the financial markets and your objectives change over time, an annual reassessment of your current investment mix is generally a sensible exercise,” says Scudder Investor Services Inc. in a newsletter for the investment program it provides to the American Assn. of Retired Persons.

Many people resist doing this sort of self-appraisal on the grounds that they don’t have enough at stake to warrant anything so formal, or aren’t yet ready to consider anything as risky as stocks.

That kind of thinking, of course, feeds inertia and procrastination while the nest egg grows. Even when modest sums are involved, it’s hard to make a strong logical case for managing by neglect.

The natural place to start is to add up what you have in money-market investments, which include savings accounts, U.S. savings bonds and bank money-market deposit accounts as well as money-market mutual funds and any direct investments in Treasury bills and other money-market securities.

For many people, this category, known to Wall Streeters as “cash,” will include a big chunk of the money they have set aside. Because the value of investments in this class does not normally fluctuate, it is generally thought of as the safest place to keep money.

“For funds that you keep like cash, in Treasury bills or equivalent, your risk is very small,” observes Rao Chalasani, investment strategist at Kemper Securities Inc. in Chicago. “Your reward is also going to be very low--a little more or less than inflation.”

A reckoning of the current value of your bond and stock holdings completes the picture of your current asset allocation, at the same time giving you an up-to-date reading of how these investments are progressing.

You say you have no stocks or stock-related investments at all, even in retirement savings programs such as individual retirement accounts and employer-sponsored 401(k) plans? Then you are giving equities a zero weighting.

Now, giving consideration to your individual circumstances, you can stand your actual allocation percentages up against some standard formula, such as 33.3% in each category.

Recently, for a “balanced” as opposed to an “aggressive” portfolio, Chalasani has been recommending 50% stocks, 20% bonds and 30% cash.

If you want to take the whole exercise to a more advanced “global” level, you can add categories for foreign stocks and bonds.

Quite possibly you’ll conclude that you aren’t willing to match your investments to any formulaic set of percentages. That’s understandable--your tastes and temperament count for a great deal, and it’s real money you’re working with, not some hypothetical model.