How do you know your Asset Allocation?

[freebird5825]

I use an X-Ray like deal at Vanguard. It has a spot for listing outside holdings. For TSP and a Fidelity index that Vanguard can't find by ticker I just substitute a similar fund.

I believe there is a way to link to your TSP data through the VG site. I no longer have a TSP account, so I cannot do a trial run.
Maybe another current TSP account holder here can chime in if they were successful.

 

[audreyh1]

For those using your own spreadsheet how do you divvy up a fund into large, mid, small, US, domestic, stocks, bonds, whatever? For example, if you have Wellington, Wellesley, Dodge&Cox balanced, do you break it down into its components? If so, how do you decide what its components are? Do you look that up on Morningstar?

I just assign each fund to a category as I originally bought it to fit a given asset class. An equity or bond fund may hold some cash, but I don't worry about it. I figure it's "close enough". The thing is, that when you find out what a fund actually holds - it's usually 6 months after the fact, so if you tweak according to a fund's internal holdings you are always way late and requires too much tweaking anyway.

And I don't include balanced/mixed funds as part of my asset allocation calculation because I don't rebalance those.

Audrey

 

[rhbrown1]

Asset allocation

There are lots of ways to track asset allocation. But, no matter which way you do it, you still need some good old-fashioned smarts to oversee the mechanized systems.

Morningstar always has a few errors in it. A well known Managed Futures fund that invests in commodities continues to be labeled a "long-short fund." Index names don't always capture the true essence of what underlies the fund: an energy index could be anything from Large Cap Value to Small Cap growth. Even a fund that has Small Cap in the name is often overly weighted to Mid Cap. And, fixed income funds are often all over the map -- short term, intermediate term, high yield and who knows what else based on their derivative exposures.

So, you have to look deeper into the fund holdings to really see what you own.

 

[Bikerdude]

I just use a spreadsheet. I separate the balanced funds into equities and fixed percentages. I don't get very granular as to amount of foreign stocks or bonds held in a balanced fund. The other funds I just list as to what they are, global stock or bond, small cap, etc. Close enough for me.

 

[Dreamer]

There are lots of ways to track asset allocation. But, no matter which way you do it, you still need some good old-fashioned smarts to oversee the mechanized systems.

Now I know what my problems is! I really should get serious about trying to learn more about all of this. I use the Target funds at Vanguard for the IRAs and the Lifecycle fund at TSP (might have the names reversed) and use Financial Engines and what they suggest for my DH's 401K. Maybe I will try one of the sites listed to input everything to see what it says. I will admit to a couple of other things that will probably get me kicked off of this board. I have never run FIRECALC and I have never read The Four Pillars of Investing, even though I have owned the book for over 5 years. (Okay, I just removed it from the bookshelf and have it laying on my desk. I am going to commit to reading a few pages per day. Please don't kick me off of this site.

 

[FUEGO]

For those using your own spreadsheet how do you divvy up a fund into large, mid, small, US, domestic, stocks, bonds, whatever? For example, if you have Wellington, Wellesley, Dodge&Cox balanced, do you break it down into its components? If so, how do you decide what its components are? Do you look that up on Morningstar?

The only fund I break down into it's component parts is the total international fund at vanguard. I have separate percentage allocations for European, Pacific, and Emerging Mkts, so I go to vanguard's page and figure out what percent of each regional fund is in the Total International fund. And there's a little block in my spreadsheet for entering this data to feed into the asset allocation summary.

I do have about 1% of my total portfolio in an actively managed fund that was given to me by my father when I was a kid. I still hold it and don't include it in my asset allocation at all. Otherwise, I'd probably lump it in 100% large blend or large value (not sure what it is exactly).

 

[W2R]

I just use a spreadsheet. I separate the balanced funds into equities and fixed percentages. I don't get very granular as to amount of foreign stocks or bonds held in a balanced fund. The other funds I just list as to what they are, global stock or bond, small cap, etc. Close enough for me.

Me too. I am not a slice-and-dicer.

 

[jIMOh]

For those using your own spreadsheet how do you divvy up a fund into large, mid, small, US, domestic, stocks, bonds, whatever? For example, if you have Wellington, Wellesley, Dodge&Cox balanced, do you break it down into its components? If so, how do you decide what its components are? Do you look that up on Morningstar?

You need to do an xray.

I am in the minority here in that I use managed funds. I use inexpensive managed funds, but they all have a manager.

I need to check my components because few funds are ever pure, and what one tool says is a mid cap another might call a small cap. So checking components once every 1-2 years for me on xray is important.

What I do:
Check each portfolio with xray to make sure my allocation is met in following ways:

90% stocks 10% bonds (Roths are 100% stocks)
then
75% domestics stocks and 25% foreign stocks
then check detailed allocation
35% large cap (45% in Roths)
15% mid cap
15% small cap
15% foreign large
10% foreign small and emerging markets

More than likely the detailed allocation (by fund selection) is off my targets by small fraction. My small cap funds own mid caps, my mid cap funds own small caps (fund managers do not have to sell them if they move out of market cap range). And what a fund manager considers mid cap and what morning star consider mid cap might not match... as long as 30% of portfolio is not large cap, the objective was met IMO.

 

[Gotadimple]

Now I know what my problems is! I really should get serious about trying to learn more about all of this. I use the Target funds at Vanguard for the IRAs and the Lifecycle fund at TSP (might have the names reversed) and use Financial Engines and what they suggest for my DH's 401K. Maybe I will try one of the sites listed to input everything to see what it says. I will admit to a couple of other things that will probably get me kicked off of this board. I have never run FIRECALC and I have never read The Four Pillars of Investing, even though I have owned the book for over 5 years. (Okay, I just removed it from the bookshelf and have it laying on my desk. I am going to commit to reading a few pages per day. Please don't kick me off of this site.

I haven't read it either, but I've read plenty of other books (I think you'll be OK on this site).

-- Rita

 

[yakers]

I will admit to a couple of other things that will probably get me kicked off of this board. I have never run FIRECALC and I have never read The Four Pillars of Investing, even though I have owned the book for over 5 years. Please don't kick me off of this site.

I might be expelled with you although I have read the Four Pillars and can think of at least two of them. But...

My name is Yakers and I am a RE addict who has never run FIRECALC.

There, I feel better. Not like I couldn't have shoe horned my data into it somewhere but I just look at DWs & my pensions which cover basic expenses and then remove <.4% of our assets each year (09 was our first full year of us both being retired) and go on from there. We have a paid off house , no debt and could live on peanut butter and in a tent if we had to.



I tell DW in a good year we go to Tahiti and a bad year Tijuana but I'm not going back to work.

 

[bbbamI]

I might be expelled with you although I have read the Four Pillars and can think of at least two of them. But...

My name is Yakers and I am a RE addict who has never run FIRECALC.

There, I feel better. Not like I couldn't have shoe horned my data into it somewhere but I just look at DWs & my pensions which cover basic expenses and then remove <.4% of our assets each year (09 was our first full year of us both being retired) and go on from there. We have a paid off house , no debt and could live on peanut butter and in a tent if we had to.



I tell DW in a good year we go to Tahiti and a bad year Tijuana but I'm not going back to work.

Perfect!

 

[W2R]

I will admit to a couple of other things that will probably get me kicked off of this board. I have never run FIRECALC

Well, I have run FIRECalc, but I have to admit that it gives me a lot more to spend that I would feel comfortable spending. So, I run it for 100% probability of success, roll my eyes at the amount it says I can spend, and otherwise ignore it.

 

[WilliamG]

I just use a spreadsheet. I separate the balanced funds into equities and fixed percentages. I don't get very granular as to amount of foreign stocks or bonds held in a balanced fund. The other funds I just list as to what they are, global stock or bond, small cap, etc. Close enough for me.

Very similar. Allocation targets are at a relatively high level:

8% Total International Index
32% Stock in balanced funds (Bal Index, Wellington, Wellesley)
40% Bonds in balanced funds plus GNMA fund
20% Reserve (money markets, CDs, Treasuries, IBonds)

 

[freebird5825]

I might be expelled with you although I have read the Four Pillars and can think of at least two of them. But...

My name is Yakers and I am a RE addict who has never run FIRECALC.

There, I feel better.

TY for standing up before I had to.

My name is Freebird and I tried running FIRECalc once, got totally lost, and gave up.
I do have a Calendar reminder set to try again, but I always find a way to put it off (laundry, taxes, gardening, boating...)
It involves too much higher level thinking, something I am trying to wean myself off of in FIRE.

 

[FinanceDude]

I rely on my Magic 8 Ball and Pet Rock...........

 

[Moemg]

I use Vanguard's Portfolio analyzer every few months !

 

[Bestwifeever]

I use Vanguard's Portfolio analyzer every few months !

Me too.

And I used to run FIREcalc all the time because it made me feel rich, not that I trusted it. But I also have never read Four Pillars or any of the other literature.

 

[clifp]

I use both the Schwab Portfolio and Vanguards, although I'm not particularly anal about it.

I do use FIRECalc also but I have to say that I haven't run during the downturn as much as I use to.

 

[jIMOh]

A second, related question (for all who post):

After you analyze the allocation, how far off the percentages do you need to be to take action?

Unless I am off by 10% or more I am not making too many bold moves (and by time my allocation is off 10% it means that I stopped paying attention for 6-12 months). I usually can adjust contributions before that.

 

[Alan]

A second, related question (for all who post):

After you analyze the allocation, how far off the percentages do you need to be to take action?

Unless I am off by 10% or more I am not making too many bold moves (and by time my allocation is off 10% it means that I stopped paying attention for 6-12 months). I usually can adjust contributions before that.

If I am 5% off target I will re-balance, and this is the only time other than the annual check-up that I look at allocations to foreign stocks and bonds. IOW I don't monitor the allocation between small cap / large cap etc very often.

 

[freebird5825]

A second, related question (for all who post):

After you analyze the allocation, how far off the percentages do you need to be to take action?

...I usually can adjust contributions before that.

Boundary conditions:
Target AA and lower bound = 40/60
Upper bound for AA = 50/50
IOW 40% minimum, 50% maximum for equities allocation
Adaptive algorithm:
Redirect of monthly DCA used to rebalance in conjunction with usual market fluctuations. Reviewed quarterly. Exchanges/sales are used very rarely, and only for elimination of higher expense ratio funds.

 

[Gotadimple]

Rebalance when overall target allocation (stocks to bonds) is off by 5% or more. To determine which asset classes to allocate from/to, I use a rule that looks at a specific % deviation from the asset allocation percentage. So:

30% allocation to Large Cap 5%+/- deviation
10% allocation to Small Cap 25%+/- deviation
5% allocation to Real Estate 25%+/- deviation
15% allocation to International Stock 25% +/- deviation
Fixed Income 25%+/- deviation

 

[Dreamer]

I might be expelled with you although I have read the Four Pillars and can think of at least two of them. But...

My name is Yakers and I am a RE addict who has never run FIRECALC.

There, I feel better.

Oh, thank you so much for admitting to this. I feel better now that I know that I am not the only one.

I actually read the Preface and Introduction of The Four Pillars today. I think that I had this book confused with The Intelligent Asset Allocator, which I know would be totally over my head. He stated in the Preface that most of the readers of The Intelligent Asset Allocator were scientists, engineers, or finance professionals. I know that there are quite a few people on this forum who had or still have these careers. I am definitely not as smart as all of you. He states that The Four Pillars allowed him to write a book about investing for the general audience. I think that I might actually enjoy reading it now. By the way, the four pillars are, Theory, History, Psychology and Business. I hope that it helps me in asset allocation. Hopefully, after I read it, I am going to go back to the thread that LOL had on AA and read some of the links he listed and try to work through it according to his plan and homework assignments. (I briefly skimmed it today.)

 

[unclemick]

I use Vanguard Portfolio Watch and believe it to be accurate.

Yep - the few DRIP stocks not in VG broker account don't alter my percents much.

heh heh heh - unless one takes off like the Dell of the 21st century or something -one can hope. But I've given up buying Powerball tickets when I gas the car. .

 

[DblDoc]

+1 for the spreadsheet system. I update monthly when it is time to allocate new money.

DD