Seeking comments on my AA model

[Maurice]

Its a new year and a new decade so it seems like a good idea to review my AA model and see if I'm still happy with it. Its been more-or-less the same since 2002. (with a few additions and minor changes).

I'll be rebalancing in 6 weeks or so mostly through new purchases, so I have a chance to make adjustments without necessarily having to sell a lot. I'm 41 and intend to ER or ESR within a couple of years, 5 at the outside, probably more like 2-3.




Start with the top down view:

Equities - 50%
Bonds - 30%
Alternative - 15%
Cash - 5%


Of which Equities are split as follows:

US - 60%
Europe - 20%
China - 5%
Japan - 5%
Pacific ex-Japan - 5%
Emerging Mkts - 5%


Bonds - roughly 50/50 TIPS and iBonds. I used to do 50% gov and 50% corporate, but I grew too concerned about future inflation prospects.


Alternative -
1/3 FX and short term foreign treasuries
1/3 Gold
1/3 Real estate



A few notes:

- Re the FX in alternative, I'm moving all of the positions (which were CDs or current accounts) into a ST foreign treasury ETF, this I view as a non-correlated dollar hedge, not as a bond allocation. That shift will be complete in January.

- Re the US equities: that allocation is split 6 ways. 20% each large mkt, sm mkt, lg val, sm val, and 2 'sectoral bets' - energy and health care at 10% each.

- All equities are vanguard funds or ETFs except for China (FXI), Japan (EWJ), Pac ex-Japan (EPP). REIT is Vanguard as well.

- Gold is GLD, Short Term Int'l Treasury ETF is ISHG.

- I have a little play money on the side, that I use for dirty market timing activities.



All comments are welcome. I am sometimes concerned that its too conservative for my age, sometimes I just think its too complicated and I could get the same risk/reward with fewer asset classes.

[Meadbh]

I see from your profile that you're 41. If you are planning to RE in your mid forties, and assuming your NW is sufficient to pass the FireCalc test, and your cash reserves are sufficient to buffer losses in the first 4-5 years, this looks like a pretty sound AA to me. If you live in the US a weighting towards US stocks is probably appropriate. As for the number of asset classes, if anything this should decrease your risk and I see it as a plus. Two positions I would consider adding are India (if not already in the Emerging Markets Fund) and commodities, but no more than 5% each.

[Maurice]

Thanks for your comments.

I've considered adding an allocation for India, and am surprised that iShares doesn't yet have an India ETF. There must be some technical challenges to it.

As for commodities, I always figured those broad commodity funds must be pretty leaky with the constant need to roll over futures. Do you own commodities? If so what vehicle?

[jIMOh]

How did you decide how much alternative you wanted?

[Meadbh]

Quote:

Originally Posted by Maurice Thanks for your comments. I've considered adding an allocation for India, and am surprised that iShares doesn't yet have an India ETF. There must be some technical challenges to it. As for commodities, I always figured those broad commodity funds must be pretty leaky with the constant need to roll over futures. Do you own commodities? If so what vehicle?

AEM, AGU, ABX, CCO, CNO, COS, POT, SU, TLM, TCK.B, TRP
All on TSX

[Maurice]

Quote:

Originally Posted by jIMOh How did you decide how much alternative you wanted?

No scientific method. I liked the idea of 5% of my total in REITS, and the other two were dollar hedges (I've been a dollar bear since 2002). 5% seemed about right for them too.