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Your Target Asset Allocation
Old 09-17-2009, 10:51 AM   #1
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Your Target Asset Allocation

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?

As for me, I have this spreadsheet which I created. For each year, I input my age and then from that the spreadsheet determines my target percentages I plan on having in stocks and fixed income (I consider fixed income as bonds and cash).

The spreadsheet breaks down the percentages in US stocks, International Stocks, Bonds, Cash. For my formulas (based of my sleeping at night risk tolerance), I use: 100 - age = % in stocks, age = % in fixed income; 1/3 of stocks in international, 1/3 of fixed income in cash


This spreadsheet keeps me honest so that gradually each year I will take a little off the table in equities and have a little more in fixed income.

Also, For my emergency fund, I do not count in the asset allocation.
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Old 09-17-2009, 10:58 AM   #2
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My targets:
*equities: 50/50 US/non-US
*5 year CD ladder based on 4% w/d per year (had to abort earlier this year--needed the cash)
*Rebalance ever couple of years.

I don't look at it as often as I used to.

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Old 09-17-2009, 11:01 AM   #3
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Sounds like a good idea! I wasn't as organized and just "played it by ear", so to speak. But I like your method better.

I did *try* doing it that way, but changed my mind before I was done because I got worried and wanted to move faster into fixed income in 2007.
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Old 09-17-2009, 02:07 PM   #4
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I do plan to increase my fixed income allocation as I get older. Over the next 10 years I'll probably increase it by 5% like I did over the past 10 years, and once I reach 60 I will probably start increasing it 1% per year.

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Old 09-17-2009, 02:47 PM   #5
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I keep track of asset allocation using the Morningstar portfolio X-ray tool as described in the AssetAllocation tutorial on this forum: Asset allocation tutorial?

My actual desired or target AA hasn't changed in a couple of years:
31% US, half large & half mid/small cap
31% foreign, half large & half mid/small cap
31% fixed income
7% commercial real estate

This target asset allocation is derived from reading the works of Bernstein, Ferri, Swedroe, Merriman, Armstrong and others who recommend that one follow the Fama&French small- and value-tilted portfolio. These are nominal numbers since I only rebalance when they go "out of range". For example, it is more like 31% +- 7%.
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Old 09-17-2009, 03:16 PM   #6
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I now use the "Bogle" method. My age (as a percentage) in fixed income.
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Old 09-17-2009, 03:18 PM   #7
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I went through the questionaire in Ric Edelman's "The Lies About Money" and am moving towards following the asset allocation that was recommended based on my answers.
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Old 09-17-2009, 03:50 PM   #8
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My AA is currently as follows:

Large cap domestic: 20%
Small cap domestic: 25%
International equities: 20%
Bonds: 31%
Cash 4%

Overall 65% stocks / 35% bonds and cash. Company stock (small cap domestic) skews our AA quite a bit. Excluding company stock, our AA is closer to 50/50.

So our portfolio is kinda bipolar. The fixed income side is very conservative (only high credit quality with short/intermediate maturities) while the equity side is much riskier than the S&P 500.

Now, it is a bit difficult to control our overall AA because the company stock is super volatile and it can only be traded sporadically (making rebalancing the overall portfolio a difficult exercise), so I usually ignore the company stock when setting a target AA for my portfolio. Consequently, and for all intended purposes, my target AA is currently set 50/50 but I allow my AA to float between 60/40 and 40/60 based stock market valuation.
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Old 09-17-2009, 04:14 PM   #9
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I use a slightly modified version of the Bogle method, so for me it's the "rule of 110". My fixed income target % is my age minus 10 (sadly, I was not FIRE investing prior to age 10, and so never came across a mathematical impossibilty in my theory). I'm a little overweighted in stocks right now, but working on getting the allocation back into proportion.

My fixed income is 100% in Vanguard Total Bond Market.

My stocks are roughly equivalent to 60% Vanguard Total US Stock Market Index, and 40% Total Int'l Stock Index (although I've gradually been increasing the int'l with the ultimate goal to reach 50/50 US/int'l).

Yeah ... I'm lazy. :-)
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Old 09-17-2009, 04:47 PM   #10
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Similar to the OP, I use a spreadsheet that includes my age and uses a formula based on age for the target stock/bond+FI ratio. My spreadsheet already used dates to track employee stock options as they vest so this was easy to add. I keep all of my investments tracked in the spreadsheet so I can calc what actual amount should be on each, and how much in $ I am off so when I want to adjust I know by how much. I also keep track of gains and losses and the tax impact of those so I know how much I'd have after taxes if I liquidated everything. This is the important number, because if I have $1M in stocks with a $1M basis, that's a lot more than $1M in an IRA that is still to be taxed.

Vanguard also has a portfolio watch tool that can track all of your investments. I've had some trouble getting it to update every outside account. You can enter them manually, but I don't think I have every investment in. I suppose it's like having two watches, since it's tough to make the VG tool and my spreadsheet match, I never know what my AA actually is, but it's close. But the VG tool is just there, and I already had my spreadsheet, and it does some things for me that the VG tool does not.

The VG tool is kind of nice in that it flags where you differ from the norm or advised ratio. For example, I've got a caution flag in that about 37% of my stocks are international, and they advise 20%, with 40% being the high end. I imagine if I was over 40% it'd be a warning flag. It's just information, and I can use it or ignore it.
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Old 09-17-2009, 04:55 PM   #11
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Target Retirement 2015. And I'm perfectly happy fibbing about my real age - what those Vanguard computers don't know won't hurt them.

heh heh heh -
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Old 09-17-2009, 05:05 PM   #12
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I should also add that I love spreadsheets and looking at and playing with numbers, so what might look like overkill and a lot of effort to some people is entertainment to me.
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Old 09-18-2009, 04:18 PM   #13
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I enjoyed reading the feedback on how you determine your target asset allocations.
It was helpful to "compare notes"
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Old 09-18-2009, 04:25 PM   #14
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I set my asset allocation way back in the last century, and haven't changed it yet. 60% equities, 40% bonds and cash equivalents. I almost decided to change it to 55/45 when I was losing sleep at the bottom of the latest crash, but decided to decide when I was more calm. BTW just two days ago, I am back at asset allocation. I've been slowly buying equities since the crash.
Our "llife plan spreadsheet" which is kinda like Firecalc but more so, says fiddling slightly with the allocation has almost no effect. It also says the more bonds (more than 40%), the lower percent survival based on historic returns. But that's just me. YMMV.
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Old 09-18-2009, 04:51 PM   #15
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Not that it matters, I'm 55 and my AA is:
US Large (val tilt)29%
US Small (val tilt)15%
Foreign20%
Bonds (int wgtd)32%
Cash4%
I will also move very slowly toward less equity & more fixed as the years pass.
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Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
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Old 09-18-2009, 05:13 PM   #16
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Quote:
Originally Posted by easysurfer View Post
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?
Quicken shows %s in its "asset allocation" investment summary.

23% +/- 5% for each of four equity classes, and the other 8% for two years' spending cash.

We'll see how the market holds up over the next few months. It's about time to refill the cash.
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Old 09-18-2009, 06:30 PM   #17
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I use an Excel spreadsheet to do a detailed NW and total asset allocation calculation each spring based on March 31 data. In recent years I have added new investment classes (real estate, venture capital, precious metals, each under 5% of my portfolio). An equities/fixed income ratio doesn't really capture the whole story, but FWIW, I'm currently about 60% equities, of which approximately 1/3 is international (meaning outside North America). My current goals are to increase the proportion of dividend stocks and preferred shares among the equities, and to build cash and fixed income with new investment. I'm also going to take capital gains early when they arise! As far as numbers go, I'm happy with my current AA and am not using any formula based on age.
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Old 09-18-2009, 07:00 PM   #18
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I'm working my way back to 60/40. I intend to leave it that way for another 5 years. I'm 56. Here's a pdf of my Excel worksheet.
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Old 09-18-2009, 09:52 PM   #19
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I use Vanguard to show my current AA. I have all my outside investments recorded and use their portfolio analysis tool. I was not as organized as having a target AA and changing it every year based on my age. Every 4 or 5 years I moved it to a more conservative AA

I am now settled at a target AA for the foreseeable future. (35/50/15) Currently it is at 40/47/13 and I'm finding it hard to resist not re-adjusting before my normal date in January.
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Old 09-18-2009, 09:55 PM   #20
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US 28.47% Intl 17.30% Bond 40.53% Cash 12.37% Other 1.33%
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