Asset Allocation

[Thrif-t]

Ok I spent all afternoon adding up all our investments. We are split about 70% stocks, 30% cash which is where we want to be. But now for my stock allocation I have about 40% in Large caps and 20% in international and the other 10% split between small, mid and bonds. I have no clue how I should be allocated in the different stock classes. Is there a standard formula? ie so much in small, so much in mid, etc? Or am i fine the way I am, maybe personal preference? I guess I never realized we were so heavy in large caps, is that ok? We probably have another 15-18 years to work. Maybe 20 depending what all happens out there.

We also have a little bit of money in target funds and I didn't even include them in my calculations cause I wasn't sure what to categorize them in?? Thanks for any help.

[kork13]

Operate it just like your overall asset allocation, set your stock allocation ahead of time to be whatever you're comfortable with, then when you do your occasional re-balancing, bring it back to those figures. For example (I think in specifics, so sorry to blast you with my own info):

My overall asset allocation is 85% stocks, 10% bonds, 5% cash. Within the 85% stocks portion, I use 50% large-cap, 30% small/mid-cap, 20% international. You can set all of those based on the funds you invest in.

I can't say if there's really a "standard formula" for determining your stock mix, but I would think of it based on volatility/risk -- the more volatile they are, the lower portion of it you hold. Large-cap is the "least volatile" of those 3 major stock types (you can also consider REITs, precious metals, commodities, etc.), followed by small/mid-cap, with international stocks tending to be the most volatile (values change based on both stock price and currency). That's how I decided what I was comfortable with, and it's worked fairly well for me.

[humandraydel]

Kork's asset allocation is pretty typical for young investors. It really is all what you feel comfortable with. I'm 29, and my asset allocation is:

100% stocks
35% International
40% Large Caps
15% Mid Caps
10% Small Caps

[StellarSaver]

Thrif-t, it seems like you might be in your 40s, like me. Here is my target allocation:

25% large cap value
25% international emerging
18% large cap blend (s&p500)
12% international developed
8% mid cap blend
8% small cap blend
4% high yield bonds

As for your target-retirement funds, I would advise you to dump those and move the money into low-cost index funds that are in line with your asset allocation strategy. Target funds usually have high expense ratios, whereas good index funds (like the ones from Vanguard or Fidelity) have microscopic ERs... a very good thing.

[jpg7n16]

For beginners info on asset allocation:
Beginners' Guide to Asset Allocation, Diversification, and Rebalancing

For a calculator of what your's should be:
Asset Allocator


Though the calculator's not perfect, it is a very good guide. And it does break out between large, mid, small and international.

I personally like to add the numbers for bonds and cash together to get my % for bonds in a retirement account.

[pat_chung]

My asset allocation is:

15% in a large cap value, stock mutual fund
105% stocks
-20% cash
(i use margin for stock investing which is why the cash % is negative)

the stock is split up among 7 stocks
2 american large tech companies -- 60% of the overall stock.
5 foreign small - mid cap - 40% of the overall stock

I don't advise the above split to anyone else -- its very aggressive (its a highly calculated risk) and I don't usually have a negative cash balance - its something I'm doing this year for a very particular market belief

I do, however, believe people needlessly overdiversify their stock or fund holdings. You really don't need to invest in 5 different mutual funds if they have a tremendous overlap.
Similarly, for an individual investor buying stocks, I think its better to keep the number small (4-10) that you can really pay attention to than to buy 20+ stocks that you can't follow.

[Thrif-t]

Originally Posted by jpg7n16

For beginners info on asset allocation:
Beginners' Guide to Asset Allocation, Diversification, and Rebalancing

For a calculator of what your's should be:
Asset Allocator


Though the calculator's not perfect, it is a very good guide. And it does break out between large, mid, small and international.

I personally like to add the numbers for bonds and cash together to get my % for bonds in a retirement account.

Thanks that calculator is what I was looking for!!

[97guns]

how about this allocation

45% income producing real estate
45% gold and silver
10% guns

call me crazy and i'll just shoot you

[LivingAlmostLarge]

I believe I'm 100% stocks in our retirement accounts because we have a lot of cash for EF and other stuff.

[snafu]

Different country, different allocation...I've differentiated since 2010 between dividend paying stocks and non dividend paying stock. Due to the strength of Canadian banks, we are holding a Financial ETF [exchange traded fund] limited to bank stock for non retirement investments.

Conservative investments in our retirement a/cs.

[thefrugaltoad]

Asset Allocation depends on your risk tolerance and how close you are to retirement. Asset classes in order of lowest to highest risk/return are: 1) Money Market & Us Treasuries 2) Investment Grade Bonds 3) Blue Chip Large Cap 4) Mid Cap 5) Small Cap. Don't forget to dollar-cost-average and rebalance your portfolio quarterly!

Paul The Frugal Toad