“Should non-liquid assets or future cash flows (I am thinking pensions, income properties, baseball card collections) be considered when setting and reviewing asset allocation? If so, how?”
Most of us do not exactly have mountains of cash to deploy for investing, but that does not mean that your home equity, insurance, and other assets are anything to cast aside.
Typically financial advisors will focus on liquid assets. While this may be looked upon as an exclusionary practice, it actually is more about protecting your best interests. Lets revisit the baseball card collection example; Even though your collection may be worth a significant amount of money, (let’s say $25,000) it would be unethical for a financial professional to justify a more aggressive allocation based upon such assets. Why? Lets say that you hire me to manage $25,000 of your money and we both agree that your allocation can be invested “more aggressively” due to the appraised value of your card collection. Looking back no further than February of this year when the Covid market sell-off hit, not only did the high growth stocks that I had you invested in get absolutely clobbered, but on top of that you lost your job. You call me frantically needing $20,000, to cover your mortgage and living expenses (meanwhile your account balance has dropped to $16,700). Imagine what your reaction would be if my suggestion to make up the difference was to “go to the bank and deposit your card collection.”
This is why a financial advisor working as a fiduciary cannot allow for more aggressive allocations due to alternate assets. If you are seeking specific guidance pertaining to your total assets, (home equity, rental properties, insurance) you may want to consult with a Certified Financial Planner (CFP). Their training and qualifications are all-encompassing and they will be able to dissect other factors in potentially a more comprehensive fashion than what investment advisor may be able to.
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