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Possible AA
Old 12-29-2008, 10:34 AM   #1
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Possible AA

Ok, peoples. I have come up with an AA for the first 11 years.

Does this make any sense.

Also I am having a hard time choosing between SPY or VTI.


A. 75% Domestic Equity
of which 5% common Energy companies Stock
10% Various stock to even out SPY overweights)
(Still working on this, PGH, DOM...WTU...)
60% SPY or VTI

B. 20% Foreign Equity
VWO

C. 5% Domestic Bonds
BIV

Then I plan to for another 10 years
A. 75% Domestic Equity
SPY or VTI

B. 5% Foreign Equity
VWO

C. 15% Domestic Bonds
BIV EDV

And I really cant see what to do with 15 years left so oh well.... ...
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Old 12-29-2008, 11:10 AM   #2
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Quote:
Originally Posted by fatman22 View Post
Ok, peoples. I have come up with an AA for the first 11 years.

Does this make any sense.

Also I am having a hard time choosing between SPY or VTI.


A. 75% Domestic Equity
of which 5% common Energy companies Stock
10% Various stock to even out SPY overweights)
(Still working on this, PGH, DOM...WTU...)
60% SPY or VTI

B. 20% Foreign Equity
VWO

C. 5% Domestic Bonds
BIV

Then I plan to for another 10 years
A. 75% Domestic Equity
SPY or VTI

B. 5% Foreign Equity
VWO

C. 15% Domestic Bonds
BIV EDV

And I really cant see what to do with 15 years left so oh well.... ...
It doesn't make much sense to me, no offense.
ALL your foreign equity is emerging markets ? Seems nutty.

As far as SPY versus VTI, I'd say use VTI. Buys the entire domestic
market, not just larger companies.

Also, your fraction of foreign equity is a bit lower than is the general
recommendation these days - based both on market size and the notion
that America is getting to be kinda a third-world has been - although
that trend can, and hopefully will, be reversed.
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Old 12-29-2008, 02:17 PM   #3
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The allocation is more important than the exact securities.

If the "foreign equity" is all emerging markets, I would ask WHY? For me that is percent total and that will go to zero once I retire.
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Old 12-29-2008, 05:43 PM   #4
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Ah yes - the infamous Why question. Take your age and pick the appropriate Vanguard Target Retirement Series that matches. Then look in the mirror and ask yourself - what is it about your personal situation that would cause you to select a different AA or asset mix?

heh heh heh - and try to understand why Vanguard selected the asset classes they did. That's tricky - especially when you consider the ones they left out.
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Old 12-31-2008, 11:18 AM   #5
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Ok, so I've reworked this "top down approach", and have come up with the following
Model Portfolio A -
30% SPY -
7 % VISGX
25 % EFA
10 % VWO
10 % TRGRX
10 % PRPFX
8 % Intermediate Bond Fund

- Oh, by the way, does anyone know how I could calculate the standard deviation for a portfolio. Is there a special way or do you just add all of the STD Devs together and divide by the number of holdings?

Thank you,
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Old 12-31-2008, 11:24 AM   #6
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Quote:
Originally Posted by fatman22 View Post
- Oh, by the way, does anyone know how I could calculate the standard deviation for a portfolio. Is there a special way or do you just add all of the STD Devs together and divide by the number of holdings?
It's a pretty complicated calculation because it depends on the dollar weightings of your holdings AND the correlation between the asset classes. In general, the higher the positive correlation, the higher the overall standard deviation as most holdings rise and fall together. When you construct a portfolio that has less correlation, that's when diversifying can actually reduce risk (in most cases; it largely failed this time unless you were overweighted on Treasuries) as some assets tend to rise when others are falling.

Basically it sounds like you are searching for an "efficient frontier" which is likely to provide the highest returns with some given level of risk (as defined by the portfolio's standard deviation), or where you look for the lowest risk given a certain expected long-term rate of return.
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Asset Allocation - Please comment. 35+ yrs to RE
Old 01-02-2009, 02:18 PM   #7
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Asset Allocation - Please comment. 35+ yrs to RE

1) STOCK 97 %
a) Domestic 40%
i) Large-cap weighted Index Fund 31 %
(1) VTI – Vanguard Total Market Index w/ .07% Exp Ratio
ii) Small cap individual dividend yielding stocks 8%
(1) VGR – Vector Group – 4% (Will be rebalanced to 2% over time)
(a) NY Real Estate Brokerage
(b) Cigarettes
(i) Nicotine Free- Cigarettes

(2) PGH – Penthouse – Energy Royalty Trust 2%

(3) HTE – Hartford Energy Royalty Trust 2% - (To be sold for BND within 10 yrs)


b) Foreign 55% Portfolio

(1) East Asia Index 29% - EFA - .25% ER
(2) Emerging Markets 12% - VWO .25% ER
(3) Diversified Commodities 8% - GHAAX – Global Hard Asset Fund 1.xx% Exp Ratio
(4) Global Real Estate 4% -
(a) TRGRX = T. Rowe Global Real estate .7x% ER (Roll into Vanguard once balance is 3k)

(5) Global Energy 4%
(a) IXC .48 Exp Ratio (Roll 80 % into Vanguard or Fidelity once (30K) Balance
(i) Other 20% into Bond Holdings
(6) Global Telecom 2% (Close position by age 45)
(a) IXP .48 Exp Ratio
(7) Russian Large Cap Index Fund 1% (Close position by age 40-46) – Stop Div Reinvest
(a) RSX

(8) African Large Cap Index Fund 1% (Close position by age 40-46) – Stop Div Reinvest
(a) AFK (What an hilarious fund name! (AFK also stands for away from keyboard)


2) BOND 1% * Adjust up by 1.5 % each year after age 35 using current contributions.
(a) Recalculate desired bond holdings
b) Intermediate 3-10 = 50% of asset class
i) To be determined
c) Long Term Treasuries = 50% of asset class
i) EDV – Vanguard ETF
3) CASH 1%

I ran the above portfolio through Morningstar’s free X-ray sample and got the following
Geographical breakdown
47% US & Canada
24% Europe
9% Japan
3% Latin America
11% Asia and Australia
6 % Other (Russia, Africa and ...) [ I guess Morningstar doesn’t plot these countries.

I also got the following Stats for the overall portfolio
Price / Prospective Earnings 10.26
Price / Book 1.37
ROA 8.2
ROE 21.55
Projected EPS Growth 5yr % 12.09
Yield % 4.22
Avg Mrk Cap 17.
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Old 01-07-2009, 07:39 AM   #8
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Quote:
Originally Posted by fatman22 View Post
Ok, so I've reworked this "top down approach", and have come up with the following
Model Portfolio A -
30% SPY -
7 % VISGX
25 % EFA
10 % VWO
10 % TRGRX
10 % PRPFX
8 % Intermediate Bond Fund

- Oh, by the way, does anyone know how I could calculate the standard deviation for a portfolio. Is there a special way or do you just add all of the STD Devs together and divide by the number of holdings?

Thank you,
I wanted to know the same thing. You can find the formula in Quantitative Methods for Financial Analysis (2nd Edition), edited by Stephen J. Brown, PhD and Mark P. Kritzman, CFA—see chapter 6, "Quantitative Methods in Asset Allocation". They may have a copy at your public library or if not there, on interlibrary loan. I made a spreadsheet to do the calculation, because as ziggy says it's a complicated formula, and the more asset classes you have the moare complicated it gets.
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