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Asset allocation assumption?
Old 12-30-2009, 10:12 PM   #1
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Asset allocation assumption?

Does anyone know what FireCalc uses as the default assumption for sub-equity asset allocation? The "total market" portfolio choice lets me choose the equity assumption (starting at 75%). But I don't know what "equity" means. There is no indication of the assumed percentage allocation within equity assets (micro/small/mid/large/us/global/Commodities). Someone must have tested alternative types of equity sub-allocations and picked the best one for the model runs.

If I run the model using the "mixed portfolio" scenario, I can't duplicate any of the "total market" results. Does anyone know what investment results are in the model for each of the "mixed portfolio" components over which time periods? (ie, the model assumes that US small value funds return 5% over 10 years, and 12% over 20 years.)

Obviously, I'm looking for historical/model guidance on which equity sub-asset mixes produce the best results.

Thanks!
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Old 12-30-2009, 11:18 PM   #2
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Originally Posted by letsquit View Post
Does anyone know what FireCalc uses as the default assumption for sub-equity asset allocation? The "total market" portfolio choice lets me choose the equity assumption (starting at 75%). But I don't know what "equity" means. There is no indication of the assumed percentage allocation within equity assets (micro/small/mid/large/us/global/Commodities). Someone must have tested alternative types of equity sub-allocations and picked the best one for the model runs.

If I run the model using the "mixed portfolio" scenario, I can't duplicate any of the "total market" results. Does anyone know what investment results are in the model for each of the "mixed portfolio" components over which time periods? (ie, the model assumes that US small value funds return 5% over 10 years, and 12% over 20 years.)

Obviously, I'm looking for historical/model guidance on which equity sub-asset mixes produce the best results.

Thanks!
Based on this
Without any other information, FIRECalc will assume you want to keep your annual spending about the same for as many years as you specify, you aren't planning on receiving any Social Security or pension, and your retirement portfolio is invested in a "couch potato" portfolio of 75% stock index and 25% bond funds, with a 0.18% fee to the fund.
from the FireCalc front page, I would think this is 75% total stock market and 25% total bond market. The mismatch may be because there are no selections for "total stock market index" and "total bond market index" in the Mixed Portfolio option, and the market may include asset classes for which separate data is not available back to 1926. The difference in timespan may also contribute to the difference in results. The Mixed Portfolio option is based on data since 1926, and the Total Market on data since 1871. For an apples to apples comparison, perhaps you need to change the date on the Total Market option to 1926? Maybe that will produce closer to the same results. Lastly, I don't know if the Mixed Portfolio data contain an expense ratio like the Total Market data do. You can try different expense ratios on the Investigate tab.
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Implementation
Old 12-31-2009, 11:27 AM   #3
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Implementation

Thanks for the reply and thoughts. If wonder how the person who created the model would implement the equity portion of the "couch potato" option? S&P 500 index? Russell 2000 index? I don't know if there really is something like the "total market" index. Any ideas? Many thanks!
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Old 12-31-2009, 12:09 PM   #4
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Thanks for the reply and thoughts. If wonder how the person who created the model would implement the equity portion of the "couch potato" option? S&P 500 index? Russell 2000 index? I don't know if there really is something like the "total market" index. Any ideas? Many thanks!
Yes, there are such funds. Google "total stock market index fund", "total bond market index fund" and "couch potato portfolio" and you'll get more info than you could shake a stick at.
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