Trying to figure out a AA

[dm]

Well Ive been retired now for 6 years so I guess its time to start looking at my AA. So far my strategy has been basically winging it. Ive been able to get away with this primarily because my wife has a pension that covers 75% of our income needs. I just turned 56 and the wife is 52.

So I did the math and it looks like we have the following, not counting the pension.

Stocks 66%
Bonds 25%
cash 6%
Reits 2%
gold/silver 1%

We currently have no debt, but I'm planning on taking a small home loan at 3.75% for various reasons, most of this money will be invested for now. So I can adjust my allocation some with the new money.

I'm thinking of cutting back on the stock portion to about 60% and putting the 6% into cash and Reits.

Am I missing anything?

 

[Animorph]

A minor tweak in the larger scheme of things. Do you have some diversity within your stock and bond holdings?

 

[DeborahB]

What's the rate of return on those investments look like? Are the stocks dividend payers or growth type stocks? And ditto on diversity

 

[dm]

The stocks and bonds are held primarily in mutual funds.

Vanguard

Dividend Appreciation
Wellesley
Inflation protected Securities
Reit fund

American Funds

Balanced fund
Smallcap World fund

I also have some individual stocks, GE, Phillip Morris, NM, ect. But not a large amount.

 

[walkinwood]

You can only know the perfect AA in hindsight, so look at a few books (Bernstein, Swedroe, Ellis etc.) and pick one or modify them to your liking.

Morningstar has a tool that will analyze your funds and give you the actual AA.
http://www.morningstar.com/InvGlossary/portfolio-x-ray.aspx

I felt very relieved when I dumped all my individual stocks and bought broadly diversified mutual funds right after the internet bust. In hindsight, it was a good decision.

 

[panacea]

Certainly doesn't seem unreasonable if most of your fixed expenses are covered without drawing from your investments. Sounds like you have a high capacity for risk. As long as you can avoid drawing from the equity portion of your portfolio during a bear market you should be fine. With flexibility in your budget you should probably be able continue to carry a fair amount of stocks. However, if you want to reduce the volatility a bit in your portfolio without missing out on a lot of return, you could ratchet it back to say, 55% to 60% between equities, REITs and gold/silver. Sorry, there's no perfect answer for this one.

 

[Animorph]

Looks pretty haphazard, particularly the international exposure.

 

[ESRwannabe]

I'm thinking of cutting back on the stock portion to about 60% and putting the 6% into cash and Reits.

Am I missing anything?

An adjustment of 6% will probably make no difference, but if it makes you more comfortable with the AA then go for it.

 

[dm]

An adjustment of 6% will probably make no difference, but if it makes you more comfortable with the AA then go for it.

60 is just a round number to start from, I just figure I need to start somewhere.

 

[Free To Canoe]

60 is just a round number to start from, I just figure I need to start somewhere.

Indeed starting is good. What you have is good but you need to try and stick with something.... Until you have good reason to change. Why not stick with 66% equities? More REITs? Why? Why not?

In other words, why do you want an asset allocation? Once you have the reasons that are right for you, it will keep you from following trends and other portfolio harming influences. Learning about it, not just the chosen percentages but the rebalancing mechanics will help you be at peace with your selections through bear and bull markets. If you haven't read it already, I recommend The Four Pillars by Bernstein to start with.

Probably coming across a little abrupt but I mean well.

 

[kyounge1956]

You might find it helpful to review this old thread, and do the exercises.