On the subject of asset allocation I have been wondering if the text book approach of using asset allocation as a tool to manage risk and improve returns without considering the circumstances of the individual is best or whether my asset allocation should reflect (at least in part) my personal retirement plans.
As an example, our retirement plans include a reasonable amount of travel. Europe is certainly one place we would like to visit more often. The problem is that Western Europe is very expensive. Meals, hotels and the like cost a lot more than we would pay for a holiday in Asia or many other places.
In order to hedge against the cost of travel to Europe, I am considering ensuring that an adequate portion of our retirement income is derived from assets denominated in euros or pounds. There have been a few occasions when I have considered buying a property in London but have been deterred by the difficulties in managing a property in another jurisdiction (I have enough problems managing back home where I can rely on relatives to help out if need be) and limited knowledge of the local market. If I rule out direct investment in UK or European property, I am left with allocating a portion of my equity investments to dividend paying European equities. At least some of these dividends would be spent on our European travels.
Similar considerations apply to some other parts of the world that we would like to spend more time in.
This approach to asset allocation is different from the text book approach which focuses on allocation solely for the purposes of reducing risk and increasing returns in a portfolio that exists independently of the circumstances of the individual. Quiet frankly, I am not sure if it matters too much since I would inevitably include equities from a number of countries in my portfolio anyway. However, it did strike me as an interesting question.