Help with asset allocation

**sweeps** · 05-02-2006, 06:42 PM

Re: Help with asset allocation

25% large cap
25% mid cap/small cap
25% international (Canada, Europe, Japan)
10% emerging markets
5-10% real estate/natural resources
5-10% bonds

**Fern** · 05-03-2006, 11:32 AM

Re: Help with asset allocation

Although Sweeps' allocations are aggressive (85% stocks), for your young age that sounds about right.

I might note that some people quesiton whether internatoinal diversification really means anything anymore since in the recent past international stocks have risen or fallen in tandem with US stocks.

Don't forget to keep an eye on annual charges in addition to the overall allocation. And try taking one of those risk tolerance quizzes found on many of the mutual fund websites to make sure you can handle above average volatility without panicking, otherwise, you'll end up selling at precisely the wrong time.

**TBH** · 05-03-2006, 12:14 PM

Re: Help with asset allocation

Thanks, Sweeps and Fern.

Seeing as I just forced myself to sell the tech stocks that I bought 9 years ago (I've been hoping any year now they'd go back up) I don't think I'm likely to sell out when things take a dive. A bigger problem for me is knowing when something's a lost cause.

I own an REIT in my 403b, so I don't really want to invest in real estate in my IRA too. What would you buy to cover the natural resources category, Sweeps?

**Haku** · 05-03-2006, 12:18 PM

Re: Help with asset allocation

I did the Vanguard questionnaire once and it showed me at 75% stocks and 25% bonds. Yikes!

**sweeps** · 05-03-2006, 12:26 PM

Re: Help with asset allocation

Originally posted by Fern

I might note that some people quesiton whether internatoinal diversification really means anything anymore since in the recent past international stocks have risen or fallen in tandem with US stocks.

Good point, Fern. But: It's still inconclusive whether this new correlation is permanent or temporary. Also international stocks help protect against a fall in the U.S. dollar.

**sweeps** · 05-03-2006, 12:37 PM

Re: Help with asset allocation

Originally posted by claire

I own an REIT in my 403b, so I don't really want to invest in real estate in my IRA too. What would you buy to cover the natural resources category, Sweeps?

VGPMX has performed very well. Unfortunately it's closed to new investors. I'll have to get back to you with one. But regardless of the fund, I would not go overboard in this category -- it's had a huge run and should only be a small part of your portfolio. IMHO.

**Fern** · 05-04-2006, 08:30 AM

Re: Help with asset allocation

OK, well just remember that international funds carry a much higher annual fee compared to most domestic stock funds. It's easy to forget how that annual charge eats into your returns.

BTW, my .02, natural resources aren't usually considered a basic component of a typical portfolio. It's a little bit of a specialized niche.

**TBH** · 05-04-2006, 08:48 AM

Re: Help with asset allocation

Anybody want to opine about inflation protected bonds versus regular?

The other thing is that my account is at Fidelity, which has a 2500 minimum on each fund.
So if I went with the allocation Sweeps suggests, my roughly $15,000 Roth balance could be divided like this:

$3750 large cap fund
$3750 small/mid fund
$5250 foreign (inc. emerging markets)
$2250 bond funds (could take $250 out of taxable account to bring this figure up to $2500)

Then I'd just make sure that future contributions didn't go into bonds for a little while to bring the percentage of my portfolio that's in bonds down from the roughly 17% this amount represents.

**PRICEPLUS** · 05-04-2006, 01:02 PM

Re: Help with asset allocation

Sweepsplayer has called it well!

**sweeps** · 05-05-2006, 06:23 AM

Re: Help with asset allocation

Thanks, PP.

Claire, there's nothing wrong with supplementing your portfolio with inflation-protected bonds, but they're not a replacement for regular bonds because they often move in different directions. More info here. I should say when working with a smaller portfolio (let's say under $50K), you really can't do complete diversification. One reason for this is the inability to meet funds' minimum balances. For smaller portfolios, I prefer a lifecycle fund such as Vanguard Retirement 2045 with maybe a piece of real estate or emerging markets added in.

**TBH** · 05-05-2006, 08:21 AM

Re: Help with asset allocation

Originally posted by Sweepsplayer

I should say when working with a smaller portfolio (let's say under $50K), you really can't do complete diversification. One reason for this is the inability to meet funds' minimum balances. For smaller portfolios, I prefer a lifecycle fund such as Vanguard Retirement 2045 with maybe a piece of real estate or emerging markets added in.

Yes, that would be wise, but what fun would it be? And it will hopefully provide me some much-needed motivation to increase my balance so I CAN diversify properly.

One of my 403b accounts, which is quite small, is in a lifecycle fund for simplicity's sake. But in my Roth, I want to play.

So, Sweeps, I know you're right, but I don't think I'll listen to you on this one point!

At the moment, I'm looking for funds for each category, and hoping to find SR funds for each category. The only category where I've completely struck out is emerging markets. That seems like the most important category to be socially responsible (I don't want to invest in companies who are exploiting 3rd world countries). But none of the good emerging markets funds are from SR fund families.

That's okay, though--I can't really afford to keep my allocations to their designated percentages and buy an emerging markets fund.

**sweeps** · 05-05-2006, 09:44 AM

Re: Help with asset allocation

No problem, claire. I applaud you for taking the time to research and make your own decisions. MSN Money lists the top emerging markets funds that are not closed to new investors. They have many other categories as well. (Click "Back to Fund Categories" for the full list.)

**TBH** · 05-05-2006, 09:59 AM

Re: Help with asset allocation

All right, I'm almost there!

Here's what I came up with:
Asset allocations nearing completion

Help with asset allocation