Asset Allocation and Targeting

[kgtest]

As some of you may know I am a newbie who is trying to better understand investing and my portfolio.

In the process I have learned a ton from this forum and the internet and for that I am completely grateful. This learning was long overdue for me.

So I want to target an AA as that will make my portfolio easier to manage and maintain. I feel I am in a good position to get my AA in order but I am not too sure where to start.

I see people post there AA as 65/25/10 which I am assuming is StocksAndEquities / Bonds / Cash.

If that is the case, I want to target 80 / 5 / 15 meaning I know I have 15% cash on hand at all times.

If I were to look at my current AA, my numbers would look like this based on my Retirement Portfolio AA = (stocks/equities + bonds) + Available Investment Cash : or, 90 / 5 / 5 . This is actually where I prefer it and I will not be picking up any bonds in 2014.

I actually have much more cash reserve available to invest, but obviously I wanted to make sure I put this into the market properly.

In reality my AA is more like : 39 / 3 / 58 which is crazy I know. Thats why I am trying to funnel in some more cash if you have read my other threads you may know this


Are there any online tools for Asset Allocation?

[pb4uski]

Morningstar's Instant X-Ray. Also, you can get some insights by looking at the AA for retirement date funds that relate to when you plan to retire, though I find them a bit more conservative that I like.

Also see https://personal.vanguard.com/us/FundsInvQuestionnaire

[Midpack]

We did an M* X-Ray in this http://www.early-retirement.org/foru...ml#post1388192 thread.

M* X-Ray and the "risk tolerance" quiz above are two good specific tools, but there are many others. What exactly are you looking for in terms of online asset allocation tools?

Out of curiosity how did you arrive at 80:5:15 if you don't mind? Nothing wrong with it at your (young?) age.

[kgtest]

Quote:

Originally Posted by Midpack We did an M* X-Ray in this http://www.early-retirement.org/foru...ml#post1388192 thread. M* X-Ray and the "risk tolerance" quiz above are two good specific tools, but there are many others. What exactly are you looking for in terms of online asset allocation tools? Out of curiosity how did you arrive at 80:5:15 if you don't mind? Nothing wrong with it at your (young?) age.

I like to use different tools to run my scenarios. I wasn't looking for anything particular I guess. I did use the X-ray back at that thread and attached my results if you want to see the actual results. I know I was going back and forth with you for a bit on the real numbers heh. I was still learning

As for how I came up with my AA, I worked backward to ensure I had enough emergency cash and cash on hand for a down payment on a house...just in case since I will in 1-2yrs be back on the Mainland and perhaps looking to buy...I cannot predict the future but I didn't want to tie the cash up in investments.

Perhaps I am looking at my emergency cash in the wrong bucket...and CASH is actually what people keep in trading accounts I am unsure. Since I have both cash in my trading account and a ton of "emergency cash" I by the end of the year intend to only have emergency cash for a house down-payment with the rest will be allocated to investment funds.

[karluk]

kgtest, you admit to being a newbie investor, and I remain skeptical that you've mastered even very basic concepts of asset allocation and diversification. I note that your last post in the "13 funds across 5 accounts" thread outlined a plan to invest 1/3 PSCH, 1/3 VHT and 1/3 VTI. It's unclear to me if you meant this to be your entire portfolio, or just one account. In either case it is clear that such a holding is not even remotely diversified - you have one broad based stock ETF and 2/3 of the money in health care stocks. I would classify such an investing strategy as performance chasing, pure and simple. You have identified two investments that have outperformed the broad market and are hoping they will continue to outperform after you've bought them. Maybe they will, maybe not, but a long term investing strategy should not have 2/3 of your money in a single sector. If you had been making investing decisions at the end of 1999 instead of 2013, such backward looking performance chasing could easily have gotten you 2/3 into internet stocks, just months before the tech bubble burst.

In my view you are a good candidate to invest in a target date retirement fund. You know you should be more aggressive with your asset allocation, and a target date retirement fund will do that for you. But I perceive (maybe unfairly, I apologize if I'm taking your health care post out of context) that you tend to come up with some rather erratic ideas about where to put your money, and a target date fund will nip that tendency in the bud. It will keep you well diversified no matter what.

[target2019]

Emergency cash is usually not considered as part of the asset allocation. Good idea to track it, though.

[kgtest]

Quote:

Originally Posted by karluk kgtest, you admit to being a newbie investor, and I remain skeptical that you've mastered even very basic concepts of asset allocation and diversification. I note that your last post in the "13 funds across 5 accounts" thread outlined a plan to invest 1/3 PSCH, 1/3 VHT and 1/3 VTI. It's unclear to me if you meant this to be your entire portfolio, or just one account. In either case it is clear that such a holding is not even remotely diversified - you have one broad based stock ETF and 2/3 of the money in health care stocks. I would classify such an investing strategy as performance chasing, pure and simple. You have identified two investments that have outperformed the broad market and are hoping they will continue to outperform after you've bought them. Maybe they will, maybe not, but a long term investing strategy should not have 2/3 of your money in a single sector. If you had been making investing decisions at the end of 1999 instead of 2013, such backward looking performance chasing could easily have gotten you 2/3 into internet stocks, just months before the tech bubble burst. In my view you are a good candidate to invest in a target date retirement fund. You know you should be more aggressive with your asset allocation, and a target date retirement fund will do that for you. But I perceive (maybe unfairly, I apologize if I'm taking your health care post out of context) that you tend to come up with some rather erratic ideas about where to put your money, and a target date fund will nip that tendency in the bud. It will keep you well diversified no matter what.

I took this post to heart...and it actually allowed me to get a better handle on my AA so thank you.

I do believe you took my healthcare post out of context and I am certainly not looking for any erratic ideas but did definitely want to understand my AA better. As for Securities / Bonds / Cash I definitely understand that.

I wanted to target health care because initially I misread Morningstar's Portfolio X-ray (thinking there sales pitch was my actual data doh) that suggested my portfolio *thereSalesPorfolio was light in healthcare. Now I have begun figuring out my ACTUAL AA heh. Then I started reading up on sector investing, and honestly of the sectors available I think anyone would be an idiot to think healthcare won't outperform every other sector this year (my strategy is pick winners) so I decided to give a Vanguard fund a try, diversifying me further by 1. Holding a vangard fund which I have none of right now 2. Dabbling into Sector investing without allocating too much $ 3. Pushing my ETF Allocation higher which was a goal of mine to get that more towards a 50/50 split.

So for my AA I took all of my funds, and I determined what % of my overall portfolio investment each fund was. For my AA sake, I am not worried about the CASH portion of how y'all in this forum report your AA, because this is also my emergency fund, and at this point I don't intend to fund my holding accounts or money markets with this EMERGENCY CASH, and I don't hold any bonds...I recently moved them into INDEX and ETF also known as taking a risk.

So now that I have a portfolio that really has securities, cash, bonds >1%, in both ETF and Mutual Funds I decided to break-down my portfolio further. This may not be called AA at this point but it is definitely allocation.

So with that said , here is my allocation using what I consider AA:

AssetAllocation AssetAlloc%
LargeCap 46.5713206470754
MidCap 14.7819405900212
SmallCap 20.022284904221
Sector-HealthCare 18.6244327914634
99.999978932781
Value 11.1298749808025
Growth 25.0605945885477
Blend 45.1850765719674
Healthcare 18.6244327914634

Mutual Fund Weight 73.216191169001
ETF Weight 26.78378776378


For me, and my investment style I think this is beginning to form a nice picture for me of where my money is invested.

I have ventured into Sector investing with the VHT Healthcare fund, but I would argue I am actually trying to just double-down on my diversification by also investing into ETF's. It might not make sense to have a portfolio comprised of both ETF and Mutual Funds, but this may only be for 6mos/1year as I further understand the market, and investing as time goes on.

I might take this a step further in my spreadsheet by determining my MIX of Value, Blend and Growth to understand my growth risk. I will also probably take the top 25holdings of each MutualFund and compare the % of overlap of one holding to the entire portfolio to get what I would consider a more accurate number of overlap rather than just filtering a column on a spreadsheet by fundSymbol to "quickly see" the overlap which is what I have been doing.

As for the VTI fund, I never did purchase that, the only reason I was thinking of doing so was to hold a vangard index fund. I am happy with there HealthCare fund...I have enough index for now. What I am really looking to do with my remaining funds is dump them into SmallCap Growth to increase that MIX.

[Midpack]

Quote:

Originally Posted by kgtest AssetAllocation AssetAlloc% LargeCap 46.5713206470754 52% MidCap 14.7819405900212 26% SmallCap 20.022284904221 21% Sector-HealthCare 18.6244327914634 10% 99.999978932781 Value 11.1298749808025 32% Growth 25.0605945885477 37% Blend 45.1850765719674 30% Healthcare 18.6244327914634 10% For me, and my investment style I think this is beginning to form a nice picture for me of where my money is invested.

Not sure how you arrived at your weights above, but it's a little troubling they don't match the X-Ray output in red more closely (from the previous thread). Then again, I am not sure we know exactly what your holdings are despite an effort by several of us - you've given us spreadsheets that simply don't add up several times.

And I assume you realize your healthcare allocation is a subset of your market cap and style allocations, not sure why you're showing that sector alone?

[kgtest]

Quote:

Originally Posted by Midpack Not sure how you arrived at your weights above, but it's a little troubling they don't match the X-Ray output in red more closely (from the previous thread). Then again, I am not sure we know exactly what your holdings are despite an effort by several of us - you've given us spreadsheets that simply don't add up several times. And I assume you realize your healthcare allocation is a subset of your market cap and style allocations, not sure why you're showing that sector alone?

Yes I do realize it woukld be a susbset. I attached my allocations. Thanks Again and happy holidays.

[Midpack]

Quote:

Originally Posted by kgtest Yes I do realize it woukld be a susbset. I attached my allocations. Thanks Again and happy holidays.

Sorry I missed it. The only one I saw didn't add up to 100%, about 66% IIRC. Regards...and Happy Holidays to you as well.

[kgtest]

This has changed a bit, as my positions have changed and I have put another influx of cash into the market.

I am looking at putting another 10% into the market in January and would love some further advice on Emerging Markets. I want a piece of Nikkei or the winning emerging market funds if you all have any suggestions.

Beyond that, my positions changed in that I consolidated DODGX into FUSEX and bought 5% XRT and VAW. I am going to see how they pan out for the next few months as folks gear up for spring break and we come out of winter.