Asset allocation tutorial?

[LOL!]

Quote:

Originally Posted by jIMOh This is misleading. There is more than one kind of risk.

Absolutely, yes. For more on risk: Assessing the Risk: Investment Strategies for the 21st Century, by Frank Armstrong

But first, let's figure out what folks already have in their portfolios. It can be a big, time-consuming step to put all of one's portfolio into the M* tool.

[Darryl]

Currently

Cash 26%
U.S. Stocks 47
Foreign Stks 19
Bonds 8

Target
Cash 10%
U.S. Stock 50
Foreign Stk 25
Bonds 15

[ats5g]

More Asset Allocation links:

From Rick Ferri The Asset Allocation Question, and his book All About Asset Allocation.

- Alec

[KM]

Cash - 2.45%
US Stocks - 52.57%
Foreign Stocks - 17.43%
Bonds - 23.75%
Other - 3.80%

DH and I also have 401ks, but I'm not sure how to enter them, as none of the funds we choose have ticker symbols. They are only listed as Large Equity, Income, Mid-Cap Index, etc.....

[LOL!]

Quote:

Originally Posted by KM DH and I also have 401ks, but I'm not sure how to enter them, as none of the funds we choose have ticker symbols. They are only listed as Large Equity, Income, Mid-Cap Index, etc.....

What I did for investments like that is find a close proxy that did have a ticker symbol. I had to read the fund prospectus though. Example: for a "Mid-Cap Index" I would use the ticker symbol MDY and just plug in enough shares of MDY to cover my total investment in the mid-cap index fund in the 401k.

[Siv]

This is interesting.

How do I participate if I don't live in US and my investment is all over the world? Will it be possible? If it is, count me in.

[calmloki]

OOOooo. Time to learn!
TRP reports this on our portfolio:

9.7% cash
66.8% US stock
17% foreign stock
6.1% bonds

10 56 19
2 3 3
3 1 2

3% midcap growth

Have a lot to learn about asset allocation - feel like we need to move into a more passive type of income, but we're currently tiny investors: we have a little less than 4 times our porfolio loaned out in property loans, 6 times the portfolio in money markets or CDs, and about 17 times the portfolio in rental property. Oh yeah - we need some diversity! Even in the portfolio our foreign stock percentage is all from 2 stocks: gold in BGEIX and Canadian coal in FDG.

[sunshine]

current
29% cash
27% US stock
15% foreign stock
22% bonds
7% other

target
10% cash
50% US stock
28% foreign stock
12% bond

[jIMOh]

Quote:

Originally Posted by calmloki OOOooo. Time to learn! TRP reports this on our portfolio: 9.7% cash 66.8% US stock 17% foreign stock 6.1% bonds 10 56 19 2 3 3 3 1 2 3% midcap growth Have a lot to learn about asset allocation - feel like we need to move into a more passive type of income, but we're currently tiny investors: we have a little less than 4 times our porfolio loaned out in property loans, 6 times the portfolio in money markets or CDs, and about 17 times the portfolio in rental property. Oh yeah - we need some diversity! Even in the portfolio our foreign stock percentage is all from 2 stocks: gold in BGEIX and Canadian coal in FDG.

This is a good example of someone which could use some assistance.

6 times portfolio in money markets "might not make sense"... but then you also have rental units.

Compare portfolio size to income (for example my portfolio is 3X my income) and I have 3 months expenses in CDs.

What is the net "income" from the rental units? Do you spend this or invest this?

In addition, I would look to add a small cap fund and a mid cap fund to whatever it is you hold. You clearly have a good large cap fund or two in your investment portfolio.

[Gotadimple]

Quote:

Originally Posted by LOL! Report what percentage (round off) you have for cash, bonds, domestic stocks, and foreign stocks. Example: we are 8% cash, 21% bonds, 40% US stocks, and 31% foreign stocks. (Future homework will require you to enter other portfolios for comparison.)

Cash 19.04%
Bonds 19.98
US Stocks 47.72
Internatl 11.96

[RetireeRobert]

cash 7%
Us stocks 54%
Int'l stocks 17%
Bonds 22%

[RetireeRobert]

Quote:

Originally Posted by LOL! Alrighty, thanks for the participation. FundAdvice.com - The ultimate buy-and-hold strategy (This is Merriman and colleagues classic description of a slice-and-dice asset allocation. It is a relative short, but complete, article on the subject)

Read it. Very interesting. Got my attention.

[boots]

Asset Allocation BY Asset Type 11-2007

BY Asset Type (%)

BONDS 15.9
CASH 8.9
NON-US STOCKS 21.6
OTHER 11.0
US STOCKS 42.6

Total: 100.0%

[LOL!]

Now let's review what we have done so far:
1. We have registered at TRowePrice for free so we can use the M* tools there.
2. We have learned how to use the M* Instant X-ray tool to look at the 9-box style grid and see how an investment contains large, mid, small cap equities divided into value, blend, and growth type stocks.
3. We have learned how to use the M* portfolio manager tool to enter and save our portfolios and see how our portfolio is divided up among cash, fixed income, domestic stocks and foreign stocks.
4. We have learned how to use the M* portfolio X-ray tool to see the 9-box style grid of our portfolio.
5. We have learned a little bit about risk and reward.
6. We have read a few articles on asset allocation.
7. We learned that for equities there are two camps in equity asset allocation: (1) total market weighted portfolios and (2) the Fama-French slice-and-dice portfolios.

8. We have learned that we can dial in our risk tolerance by the amount of fixed income and cash that we hold in our portfolio. We have learned that whatever percentage of equities we have in our portfolio, that we can maintain the asset allocation among the equities the same in terms of percent large cap, small cap, foreign, domestic, value, growth, etc.

Here are a few more links to read to help review and cement your knowledge:
Building Your Portfolio: Investment Strategies for the 21st Century, by Frank Armstrong (Armstrong's article; similar to the Merriman ultimate-buy-and-hold article)
Portfolio Tactics: Investment Strategies for the 21st Century, by Frank Armstrong (Armstrong's next chapter, which includes some %fixed:%equities info)
FundAdvice.com - Fine tuning your asset allocation (Merriman's follow-on article, which includes some %fixed:%equities info)

To be fair, here is an online book by Rick Ferri that contains advice on investing in total market weighted style: Portfolio Solutions)


At the end of reading these articles, one should have a general idea of what percent fixed income and cash that one wishes to have in their portfolio. This will be a personal decision, but should be based on the risk level or maximum portfolio loss in a year that is acceptable to you or perhaps based on the desired long-term average annual return that you need. It can also be based on personal experience that you've had with your portfolio. For some help with this, you might take a look at Portfolio Solutions

http://www.portfoliosolutions.com/v2...20Question.pdf which are both from Rick Ferri's (author of All About Asset Allocation) company's web site.

Homework: After some careful thought, tell us what your desired asset allocation in terms of %stocks, %fixed income is. Give us a sentence on why you chose that split. Tell us whether you are in the total stock market weighted camp or the F-F slice-and-dice camp or somewhere in-between. Then finally tell us how you want to split up your equities into domestic and foreign.

I know this is a little harder than the first homework of a simple instant X-ray. Take your time, there is no deadline. Next time we will enter "model portfolios" into our M* portfolio manager account and X-ray them, to see how the models stack up against the theory and our own portfolios.

[REdreamn]

14% cash
42% us stock
44% foreign stock
0% bonds
0% REIT

33 21 19
6 6 7
3 3 2

There is an almost equal amount to the above in real estate equity, split 80/20 between a rental property with no net income and our primary residence.

*want allocation centroid more toward small value. Anyone have an easy way to find centroid?

[Darryl]

Stock 75%
Fixed 25%

I have a long time horizon and at this risk reward level I would follow the strategy without abandoning ship.

F-F Slice & Dice Domestic 66% Foreign 34% of equity portion.

[sunshine]

80 stock
20 fixed

Have a long term approach

total market strategy

60 domestic
40 foreign

[KM]

65 stock
35 fixed

We will EA in 5 years+-, depending on my mood ;-) We have been running at 70/30, but I think it is time to become a little more conservative. I am comfortable with the market's ups and downs and we can handle some losses. We will both also have pensions in 5 years, as well as some rental income - so I feel comfortable in the 65-35 range. I suspect when we retire, I might slide that into the 60-40 range.

70 domestic
30 foreign

I think I am more towards the total market strategy spectrum, if I understood it correctly to be the "passive/index low-cost investing"?

[JohnP]

3.06% cash
56.71% US Stocks
36.53% Foreign Stocks
3.20% Bonds

29 25 22
9 8 4
2 1 1

We are 5 years since retirement w/Cola'd pensions covering expenses. Portfolio/savings was originally planned to be one strong leg in our "three-legged-stool" of pension, savings and SS. Would like to grow the portfolio with a long range perspective - currently consider ourselves in the slice-and-dice category...

JohnP

[LOL!]

JohnP, although you state you consider yourselves in the s-n-d category, your asset allocation is extremely close to a total stock market asset allocation (see eridanus's post #32 above).

KM - slice-and-dice can be implemented with a passive/index low cost investing.

This is getting ahead, but does anybody want to post the 9-box style grid for either the Merriman portfolio #6 or the Armstrong portfolio #5 which are both slice-and-dice portfolios tilted to small cap and value? Or how about the 9-box style grid for any of the lazy portfolios?