Your Target Asset Allocation

[kumquat]

I don't think I'll tell you mine. It just might be construed as a suggestion. I'd never suggest it to anyone. Here's the results, YMMV.

 

[Lsbcal]

I have a bizarrely complex spreadsheet system. But currently we are, 58% equity with:

32% US
26% International

US is 42/33/23 large/mid/small
International is 69/22/9 large/mid/small

FI is
22% CD's, MoneyMarkets, short TIPS
27% intermediate TIPS, Ibonds from the good old days
51% short term investment grade

 

[Meadbh]

I don't think I'll tell you mine. It just might be construed as a suggestion. I'd never suggest it to anyone. Here's the results, YMMV.

Let me guess.....mining, precious metals, China, India, Canadian banks?

 

[Surfdaddy]

The original poster wanted to know HOW to determine asset allocation, not what it actually is. So I'll indicate my method:

1 - read a lot of books, and made a chart of asset classes and subclasses (first stocks, bonds, cash,-- then us-large, us-value, large-intl, emerging mkts, etc.) and filled in the percentages recommended by each source, so that I could compare. Sources were:
Rational investing portfolio
Swensen at Yale
Merriman's ultimate portfolio
A few others

2 - One of my books (forgot which one, it's one of the ones recommended here) has a great chart of asset mixes of stocks/bonds from 100/0 to 0/100 in units of 10%. For each mix the chart shows over the past 50 or so years - what is the most you would have lost in a year? in 5 years? what was the biggest gain in one year? in 5 years?. (note that the chart obviously does NOT include the recent plunge - I've concluded that I'm a little too aggressively invested )

I took my risk tolerance from the chart in #2, compared it to the recommendations from chart in #1, and built my own target allocation. Then in a spreadsheet I monitor current actuals vs. target. I use conditional formatting so that when a percentage goes out of range of 5% absolute or 25% relative, the cell turns yellow and that is the trigger to rebalance.

 

[rescueme]

I'm curious, what do the rest of you do in determining your target asset allocation for the year? Do you play it by ear or have a set method?

During the time that both my wife were gainfully employed, we ran a 90/10-80/20 target AA, with very little in cash. BTW, our emergency fund (only used for pre-retirement) was outside our retirement portfolio's.

We're in our early 60's. I'm retired, my wife will be within the next year. Since i actually retired before the age of 60, and we've been in the market for 25+ years, we feel confident with our current ER target of 60/40. The bond (40%), also contains our substantial cash buckets, that I (and my wife will use) for ER income. DW is planning on taking early SS before mid-year, 2010. I'm delaying mine till age 70.

Using M* X-Ray against our combined portfolio view (I'm a bit more agressive, of course; she less so), it shows us currently at a 58/42, due to the downturn, but we don't rebalance (and BTW, reinvest all distributions). Any reallocations are done by selling (opposite of what we did, through new contributions, when we were both employed).

As we age, we certainly will reduce our equity holdings, but due to our family/financial situation (no future generation to worry about), and substantial cash holdings to get over market swings, we can be a bit more agressive than most would consider, for our age.

We don't re-adjust every year; in fact we went from an employment AA (90/10), to an ER AA (60/40). I can see us going 50/50 by the time we reach 70. In other words, current AA is not overly tracked, nor adjustments of our portfolio to meet the current target is done in an active manner.

Anyway, since you asked.

 

[haha]

I have a dynamic asset allocation that varies from 100% equities, down to maybe 30 or 40% equities. I lump speculative bonds together with equities to determine allocation.

The reason my floor is not 0% is legacy positions that I don't want to sell. Over time this floor should creep higher.

Ha

 

[nun]

I'm 48 years old

30% US equity
20% International Equity
50% Bonds/fixed

This is in Vanguard and TIAA-CREF index funds. The allocation is off with the recent rebound of equities so I'm rebalancing. I recently took 50% of the gains in my after tax accounts and used it to pay down the mortgage.

 

[IndependentlyPoor]

I've posted this elsewhere, but...

I didn't think very much about asset allocation before the crash. It was a comfort thing... and I wasn't comfortable with much in equities at all. We went into the crash with something like 40/40/20. The 20% cash was part of the proceeds from selling our house and had been sitting in MMF for years.

The crash made me realize that we were very close to "living off the interest", so I sharpened my pencil (OK, fired up the spreadsheet) and figured out what percentage bonds it would take so that we could live entirely from interest and dividends. That worked out to 60% bonds.

I rebalanced in July (a little late) and took our cash position down to 5%, so we were [-]55/40/5[/-] 40/55/5. I have since sold all our foreign bonds, bringing our cash back up to 10%. I am trying to figure out how to deploy that extra 5% now.

I understand that such an equities-light allocation makes my portfolio more vulnerable to inflation, but it also allows me to face market downturns without having to worry about selling at a loss.

 

[Lsbcal]

...(snip)...
I rebalanced in July (a little late) and took our cash position down to 5%, so we were 55/40/5. I have since sold all our foreign bonds, bringing our cash back up to 10%. I am trying to figure out how to deploy that extra 5% now.

I understand that such an equities-light allocation makes my portfolio more vulnerable to inflation, but it also allows me to face market downturns without having to worry about selling at a loss.

IP, I don't know your age but if you have 55% equities I'd not call that equities-light. Some bonds which will probably do OK with inflation are short term bonds and TIPS. I haven't seen agreement on how inflation sensitive equities are. Probably depends on how unexpected the inflation is (sudden burst or more steady state), whether the industry can pass the inflation on to customers, whether alternative investments (like bonds) are priced better, etc.

 

[IndependentlyPoor]

Doh! Homer Simpson moment.

We have 40/55/5. Sorry.

 

[kumquat]

Let me guess.....mining, precious metals, China, India, Canadian banks?

No precious metals. Add some agriculture. Large equity allocation in former mega-corp.

 

[kyounge1956]

Before I found the "Asset Allocation Tutorial" thread, I had already run a number of scenarios in an online Monte Carlo simulator using the growth rate and standard deviation for "Below Average Risk" (because I'm pretty risk-averse). The results of the Monte Carlo looked promising, so when I did my homework on the Tutorial I picked an allocation that would be expected (based on historical data) to have that growth rate and standard deviation.

My actual allocation is still way off the target (too much stock, too few bonds), and limited choices in my tax-deferred plan at work mean it will probably stay that way until I retire.