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Hello and BTW I Need help with Asset Allocation
Old 08-22-2012, 03:05 PM   #1
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Hello and BTW I Need help with Asset Allocation

My wife and I were business owners. I'd owned small businesses for about 33 years by the time we sold our business in July of 2009. Our Children are grown and on their own, we have grandchildren. I'm 60 and my wife is 58. In 2006 we took a wonderful vacation in Greece. For some reason this vacation had a profound effect on both of us. Returning to work was just not the same. I did not want to be there anymore.

Heading into 2007 I suggested that I was ready to be done with that hectic phase of my life. My wife said she felt the same way. We decided that combined with what we already had in savings (investments) if we stayed very focused we could pay off all of our debts, mortgages, etc., while adding to our savings, and retire in 5 years. Our business was very successful by this point and things really came together, so we reached our goals in two years instead of five.

About the time we sold our business we found Bob Clyatts's book and companion workbook, Work Less Live More. We read the main book cover to cover. It was signing our song, but we did not really have the time to complete all of the workbook worksheets. Besides running our business we also sold it ourselves, so our work days were never ending.

By 2009 we had paid off the mortgages on both our commercial building and our home, our cars were paid for as well as any outstanding business loans. When we sold our business we debt free. We purposefully did not value our business as high as we could have, but we did well and our object was to sell it quickly.

Three years have passed and all has been going fairly well. We've taken a few nice trips and we're considering full-time RVing in our new-to-us 29' Airstream. So it's time to take control of our investments, all of them including the stocks, funds and bonds.

My father died in December 2010 and being the only heir I inherited his mortgage free house. Fortunately his house was not far from ours. We were able to do needed repairs and remodeling to the house ourselves and then rent it out. We currently have income from both our commercial building and the residential property. Plus we have been receiving payments from the owner of our previous business as we financed part of the sales amount (this does not always go smoothly, but it's working none the less).

For years we've allowed our portfolio to be managed for us. Although it hasn't done badly we both feel we'd like more control and understanding of what we have. We believe we'd like to set up our investments to mirror the Rational Investing Portfolio, thus reducing those management fees while gaining more control. So, we've recently cracked open Bob's books and are trying to get this done.

When it comes to our equities and bond portfolios We have hardly got a clue. Fortunately we have not had to use them Yet as a resource for our retirement income. Our broker is really no help as he does not want to work himself out of a job.

Bottom line we need some help. I just spent two hours today trying to determine asset allocation and classification for a few of the numerous stocks in our combined portfolios. After two hours I'm no closer to knowing what they are than before I began. I've tried Morningstar, Yahoo Finance and Google. I'm lost in the brush and could really use some help getting started. This is not my first attempt, to understand this stuff, but it is my first request for help.

I'm more than willing to share more details about our holdings, but have held back not knowing what is needed or appropriate. I look forward to meeting others on this site, learning and evening helping where I can.

Regards,
Pete
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Old 08-22-2012, 03:13 PM   #2
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Couldn't (and didn't) say it better myself! Down here scrubbing in the brush beside you! I should change my user name to CLUELESS
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Old 08-22-2012, 03:36 PM   #3
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Welcome, first you need to know how much you are spending.
Second you need to know how you will pay for those expenses.
Third you need to know guess, how much risk you need to make those expenses.
Fourth you need to allocate between short, medium, and long term expense needs.
Than allocate assets that can provide the projected income in each time frame.
Knowing that short term assets usually deliver less than 1%, medium term maybe 2-3%, and long term about 4-5% realistically.
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Old 08-22-2012, 03:48 PM   #4
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Thanks, I got the first one, can manage spending lots less but oh boy what fun we've had the past two years! Second, if I can better manage the first, the second is well underway. Third, not too much! Fourth, most of our expenses are fixed from this point unless something unplanned comes up, which it will I'm sure! Our biggest struggle right now is figuring out how we identify our holdings ie; Large Stocks, Small Stocks, International, Emerging, Long term Bonds, etc. etc. Can't seem to uncover the information on Morningstar, Yahoo, etc. Any thoughts?
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Old 08-22-2012, 03:55 PM   #5
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Quote:
Originally Posted by Fodus View Post
Thanks, I got the first one, can manage spending lots less but oh boy what fun we've had the past two years! Second, if I can better manage the first, the second is well underway. Third, not too much! Fourth, most of our expenses are fixed from this point unless something unplanned comes up, which it will I'm sure! Our biggest struggle right now is figuring out how we identify our holdings ie; Large Stocks, Small Stocks, International, Emerging, Long term Bonds, etc. etc. Can't seem to uncover the information on Morningstar, Yahoo, etc. Any thoughts?
These may answer your questions...

Market capitalization - Wikipedia, the free encyclopedia
Quote:
Market capitalization (or market cap) is the total value of the tradable shares of a publicly traded company; it is equal to the share price times the number of shares outstanding.

Large-cap: Over $10 billion
Mid-cap: $2 billion–$10 billion
Small-cap: $250 million–$2 billion
Micro-cap: Below $250 million
Asset allocation - Wikipedia, the free encyclopedia
Quote:
Asset classes
  • cash and cash equivalents (e.g., deposit account, money market fund)
  • fixed interest securities such as Bonds: investment-grade or junk (high-yield); government or corporate; short-term, intermediate, long-term; domestic, foreign, emerging markets; or Convertible security
  • stocks: value, dividend, growth, sector specific or preferred (or a "blend" of any two or more of the preceding); large-cap versus mid-cap, small-cap or micro-cap; public equities versus private equities, domestic, foreign (developed), emerging or frontier markets
  • Commodities: precious metals, broad basket, agriculture, energy, others
  • commercial or residential real estate (also REITs)
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Old 08-22-2012, 04:02 PM   #6
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Pete Congrats on making it through business ownership and selling and the first few years of retirement.

I just wanted to give one idea - perhaps get you started and then you can improve on it from there. I decided my asset allocation at

Stocks: 70%
US Large cap: 25%
US Mid/Small: 20%
International: 25%

Bonds/Cash 30%
cash: 9%
US Bonds: 15%
International Bonds: 6%

Don't use my numbers, but figure what asset allocation you want then I made a spreadsheet with all my funds/stocks in Column A and:
Column B - large cap
Column C - mid/small
Column D International
Column E stock totals
Column F Cash
Column G US Bonds
Column H Intl Bonds
Column I Bond totals

For each fund, I looked at morning star for that fund, and look for "style map". For example, Fidelity Contra (FCNTX) - it shows large growth. So in the row for FCNTX I put the value in column B, for Fidelity New Markets income (FNMIX) it shows nothing, so I had to look at the holdings and confirmed international bonds, Col H. Stock funds are easier as the Small, Mid, Large are displayed clearly.

Then I can total each column and get a total of the total row, which then leads me to get actual percentage I have invested in each column or asset group.

Sounds like I didn't explain it well, but let me see if I can include a file in a personal message and I'll attach a copy of the spreadsheet.
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Old 08-22-2012, 04:02 PM   #7
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I use Vanguard for all my financial assets I can see this online.

AA after VYM sale.JPG

I also use Quicken and I see this AA

Qkn AA.JPG

Quicken shows more cash, when in fact it is a bond allocation.
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Old 08-22-2012, 04:17 PM   #8
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Thank you Grasshopper.
It looks like you know exactly what you mean, but I'm going to admit upfront that I hardly have a clue. I'm not sure what you are saying, but I do know what my expenses are and what I need to cover that nut.

This did help me to realize that I may not have expressed my original question to well.

My problem is understanding my portfolio of stocks (mostly). I'm not sure how to identify the various types of stocks in my portfolio so that I allocate my portfolio properly. For instance how do I know if a stock is a Large Cap, Mid Cap, Small Cap, International, Growth, Value, etc. Can an individual company stock (not an ETF) be more than one type. For instance, can it be a Large Cap, small cap, etc., and still be a Growth or Value Stock. These are all mysteries to me. Based on what I've read and also what FireCalc looks for, I believe I have to unlock those mysteries and get my assets properly sorted in order to get the portfolio in order. Any help on that?

Pete
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Old 08-22-2012, 04:23 PM   #9
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Grasshopper you're just to fast for me. I was still answering your first post.
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Old 08-22-2012, 04:43 PM   #10
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Originally Posted by PeteW View Post
Thank you Grasshopper.
It looks like you know exactly what you mean, but I'm going to admit upfront that I hardly have a clue. I'm not sure what you are saying, but I do know what my expenses are and what I need to cover that nut.

This did help me to realize that I may not have expressed my original question to well.

My problem is understanding my portfolio of stocks (mostly). I'm not sure how to identify the various types of stocks in my portfolio so that I allocate my portfolio properly. For instance how do I know if a stock is a Large Cap, Mid Cap, Small Cap, International, Growth, Value, etc. Can an individual company stock (not an ETF) be more than one type. For instance, can it be a Large Cap, small cap, etc., and still be a Growth or Value Stock. These are all mysteries to me. Based on what I've read and also what FireCalc looks for, I believe I have to unlock those mysteries and get my assets properly sorted in order to get the portfolio in order. Any help on that?

Pete
Pete any stock will fit in large, mid, small and also value or growth. I would recommend starting with size then you can further separate into growth or value later. This just to see some results from your effort. Also, there can be a difference of opinion on growth or value - take Apple - I would claim it is a value stock since the pe is low. Others would say growth and both could backup the claim. Now Facebook that is growth for sure
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Old 08-22-2012, 04:48 PM   #11
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Thanks Midpack,
I've scanned the links and I believe the they'll be pretty helpful. I'm kind of surprised that when i look up a stock on Morningstar or Yahoo Finance it doesn't seem to specify this sort of thing. It will tell me the sector, but not the other. I guess I'm expected to be at least sophisticated enough to know this kind of thing. NOT. Of course, I may just be overlooking that info entirely.

Being a newbie is hard! Hahaha
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Old 08-22-2012, 04:49 PM   #12
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As for accessing each stock in your portfolio. Yes you can have a stock with a capitalization being a large cap or small cap, and it can be a growth or value stock also. Lets look at Whole Foods Market from the Marketwatch site.

WFM Company Profile - Whole Foods Market Inc. Company Information

WFM.JPG

I see a large cap over $10 billion in capitalization. I see a P/E of 42.10 not what I would call a value stock. Dividend of .58, so there are spending earnings on growth, not dividends. And I wish I still owned it when I sold it for 4 times what I paid for it.
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Old 08-22-2012, 04:51 PM   #13
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Pete,

Welcome to the board. I agree that you may wish to start of at a higher level first, then later decided to break down the allocations further or not at all.

For example, right now you can probably separate your allocations, at a high level, to US Equities, International Equities, Bonds, Cash.

That would give you an overall view. In fact for me, since I pretty much just follow a broad index approach, that's as far I need to separate my allocations (simple, but effective enough for me ).
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Old 08-22-2012, 05:16 PM   #14
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Originally Posted by grasshopper View Post
I use Vanguard for all my financial assets I can see this online.

Attachment 14880

I also use Quicken and I see this AA

Attachment 14881

Quicken shows more cash, when in fact it is a bond allocation.
Grasshopper,

may be that quicken is showing the cash position in any bond funds that you might have.
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Old 08-22-2012, 05:23 PM   #15
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Pete any stock will fit in large, mid, small and also value or growth. I would recommend starting with size then you can further separate into growth or value later. This just to see some results from your effort. Also, there can be a difference of opinion on growth or value - take Apple - I would claim it is a value stock since the pe is low. Others would say growth and both could backup the claim. Now Facebook that is growth for sure
I agree with you RB90, and really that is mostly what I was trying to get, I just wasn't sure how. Midpack showed me the way. Now that I'm kind of understanding the whole Cap size and how it's determined. I beginning to feel a bit less overwhelmed. I now understand that the cap size is based on $$$. Simple really when it's finally clear. It was getting to that clear point that was giving me so much trouble. Hahaha


Quote:
Originally Posted by grasshopper View Post
As for accessing each stock in your portfolio. Yes you can have a stock with a capitalization being a large cap or small cap, and it can be a growth or value stock also. Lets look at Whole Foods Market from the Marketwatch site.

I see a large cap over $10 billion in capitalization. I see a P/E of 42.10 not what I would call a value stock. Dividend of .58, so there are spending earnings on growth, not dividends. And I wish I still owned it when I sold it for 4 times what I paid for it.
Thanks for hanging in there with me grasshopper. I'm starting to get this. Just barely. Doh! The valuation part is still going a bit over my head, but I'm zone on the cap stuff.

Quote:
Originally Posted by easysurfer View Post
Pete,

Welcome to the board. I agree that you may wish to start of at a higher level first, then later decided to break down the allocations further or not at all.

For example, right now you can probably separate your allocations, at a high level, to US Equities, International Equities, Bonds, Cash.

That would give you an overall view. In fact for me, since I pretty much just follow a broad index approach, that's as far I need to separate my allocations (simple, but effective enough for me ).
Thanks you ES, I'll take all the empathy I can get. Hahaha I was just really struggling on the whole Cap / size thing, but I believe I get that now. Hopefully I'll be able to sort out the International, Foreign, and so on as well. Haven't really tried to do that yet.
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Old 08-22-2012, 05:25 PM   #16
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Asset allocation tutorial: Asset allocation tutorial?
It teaches you how to use Morningstar Portfolio X-ray, but you could use Morningstar Instant X-ray as well.

Also you may wish to mosey on over to Bogleheads • View topic - Asking Portfolio Questions for lots of free help.
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Old 08-22-2012, 06:26 PM   #17
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Morningstar will reveal quite a bit. You need to enter all of your holdings into instant xray. Then turn that into a portfolio that will track. You can share it also.

First step is a spreadsheet. Open a sheet and enter every fund. Next column enter the symbol. Next column enter fund total. Next column is where you calculate the percentage of each holding.

When you go to Morningstar you will enter just the fund symbols and percentages. It must total 100%.
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Old 08-22-2012, 11:20 PM   #18
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Pete,

The AA of certain funds designed for people retired or on the verge of retirement are a good place to start. Many of us on these boards are Vanguard customers. The Vanguard Target Retirement 2015 fund is roughly 55% stocks and 45% bonds, the Vanguard Target Retirement 2010 fund is 45% stocks and 55% bonds and the Vanguard Target Retirement Income fund is 30% stock and 70% bonds and cash. So depending on your risk appetite, a range of 30%-55% stocks and 70%-45% bonds and cash would be in the ball park.

Others love Vanguard's Wellesley Income fund which is roughly 40% stocks and 60% bonds.

As another example, I recently retired at 56 and my target AA is 58% stocks (43% domestic, 15% international), 38% bonds and 4% cash.

Morningstar's Instant X-Ray tool allows you to input your holdings and will give you a pretty good first cut analysis. I happen to really like Vanguard's Portfolio Watch analysis.

If Vanguard interests you, they would provide a complimentary financial planning analysis with a Certified Financial Planner for new customers bringing substantial assets to them. The one thing that is unique about Vanguard is that the management company is owned by the funds (sort of like a mutual company or cooperative).

Good luck.
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Old 09-04-2012, 08:23 PM   #19
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PeteW,
I am not a finance guru but I have been using Vanguard as my family and I prepare for my military retirement in 6 months. We have been saving for years to get to where we are now and one of the best resources I have found has been the Bogleheads.org website. Post a question on there and you will get lots of feedback. They have a set format for asking your questions that will get lots of consideration from the groups. There is a real cast of finance gurus on the site including CFPs, book authors etc. Good luck and best wishes to you.
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Old 09-06-2012, 07:01 AM   #20
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PeteW,
I am not a finance guru but I have been using Vanguard as my family and I prepare for my military retirement in 6 months. We have been saving for years to get to where we are now and one of the best resources I have found has been the Bogleheads.org website. Post a question on there and you will get lots of feedback. They have a set format for asking your questions that will get lots of consideration from the groups. There is a real cast of finance gurus on the site including CFPs, book authors etc. Good luck and best wishes to you.
Thanks, my wife, Fodus, and I, did get all of our assets allocated (pretty well) week before last. Then last week we had family visiting and did not get much done. Plus we've been working on a new-to-us Airstream which needed a few fix-em-ups. This morning we're finally getting back to our finances.

We are very appreciative of all the help and encouragement we've received. We've briefly looked at bogleheads.org and should get back over there today for another look. I also hope to post the results of our asset allocation work on this site.
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