"The Markets" as a % of your overall investment portfolio?

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"The Markets" as a % of your overall investment portfolio?

Postby mrsub » Sun Jun 30, 2013 5:18 pm

Relatively new to all this and with a goal to expand my knowledge on asset allocation and diversification, do you guys mind me asking you what portion of your portfolio - that is - "entire wealth" is invested in the markets?

Let's say you have a million dollars in cash, wanted to buy a house for 250k so that is 1/4 in real estate... Would you invest all of the 750k into stocks, bonds, etc? Or, what % of that would go into the markets?

There are a lot of investment classes out there (precious metals, collectables, real estate, etc) besides stocks and bonds, I'm just curious how much you guys are devoting to the markets in general?

I have read many different theories on this and the one that appealed to me the most (made the most sense) was something like the Harry Browne portfolio where you would have 25% cash, 25% bonds (long term), 25% stocks, 25% gold. From what I understood, this was apart from any real estate investments one had such as their primary home.

What theory of asset diversification do you guys follow - any why?
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Re: "The Markets" as a % of your overall investment portfoli

Postby livesoft » Sun Jun 30, 2013 5:22 pm

Bond funds, stock funds, REIT funds, etc: 90%. Home is about 10%. We have no cash, no jewelry, no art works, no precious metals, nor other worthy assets.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: "The Markets" as a % of your overall investment portfoli

Postby momar » Sun Jun 30, 2013 5:25 pm

By owning the market, I also own stakes in REITs, all real estate owned by every public company, and all commodity ownership and production by every public company. Plus all that fantastic artwork you see in the foyers of MegaCorps everywhere.
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Re: "The Markets" as a % of your overall investment portfoli

Postby Jim180 » Sun Jun 30, 2013 5:31 pm

Your age and risk tolerance are the two primary factors. I'm a conservative retired person so I only have 30% stocks, 60% bonds, and 10% cash. That will not be right for you though. No way would i put 25% in gold. That's way too much. Maybe 5% tops.
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Re: "The Markets" as a % of your overall investment portfoli

Postby nisiprius » Sun Jun 30, 2013 5:36 pm

No "nontraditional" assets for us. No real estate except the house we live in, which I regard as shelter, not as an investment.

I regard the "Yale model" and the interest in nontraditional assets as faddish, and after reading William J. Bernstein's Skating Where The Puck Is I feel confirmed in my conservatism.

By "the markets" I assume you mean securities.

We do have a significant part of our portfolio that is in cash (bank accounts and CDs) and in series I savings bonds. Outside of that, everything is at Vanguard and everything is in traditional securities, specifically: individual TIPS; bond funds, mostly Total Bond Index; Total Stock; and Total International.
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Re: "The Markets" as a % of your overall investment portfoli

Postby John3754 » Sun Jun 30, 2013 5:56 pm

90% securities, 5% metals, 5% cash.
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Re: "The Markets" as a % of your overall investment portfoli

Postby mrsub » Sun Jun 30, 2013 5:58 pm

Do you guys worry about currency risk - such as problems with the US dollar in the future? How are you hedging your bets with that?
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Re: "The Markets" as a % of your overall investment portfoli

Postby Dale_G » Sun Jun 30, 2013 6:01 pm

Our home, car, bank accounts, I bonds and the junk we have accumulated over the past 50 years or so amounts to about 7% of our assets. The rest is "in the market".

Keeping the money in the market is a lot easier than buying more homes, boats, airplanes and Rolex watches.

An old boss of mine had 142 "servants" at one of his homes. It sounded like a big hassle to me. I prefer to keep it simple.

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Re: "The Markets" as a % of your overall investment portfoli

Postby Noobvestor » Sun Jun 30, 2013 6:35 pm

mrsub wrote:Do you guys worry about currency risk - such as problems with the US dollar in the future? How are you hedging your bets with that?


Non-US equities. Currency risk cuts both ways of course, though - dollar might do better or worse than other currencies. Not sure what 'enough' exposure is vs. 'too much', but I think 50/50 US/ex-US equities is a good place to start, and holding ex-US currencies outside of equities is probably not worth doing unless you travel and like the convenience of having other currencies on hand, or feel really strongly about gaining further currency exposure (in which case maybe unhedged international bonds). /2 cents.

As for the broader question: I'm mostly in stocks and bonds ... have some cash and (personal home) real estate too, and my human capital. Not terribly interested in owning additional real estate (I suppose maybe a second home someday in the right circumstances), vaguely potentially interested in commodities but for me they aren't tax-efficient (not enough tax-deferred space). Sometimes I wish I could really 'own' commodities like oil, or perhaps oil/commodity-producing land, but that's not really practical for most people and I'm lazy to boot ;P
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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Re: "The Markets" as a % of your overall investment portfoli

Postby MoonOrb » Mon Jul 01, 2013 12:05 pm

On one hand, I consider myself 100% fully invested in "the markets" since I don't think of cash or home equity as anything that's invested. On the other hand, every month I do a rough net worth calculation that includes cash holdings and a ballpark home equity estimate. In these net worth calculations, my "invested in the markets" portion of my net worth typically hovers around a few percentage points of 85%.

But I'm wondering what the utility of this information is: it seems like the answer to the question of "how much should be invested in "the markets" depends on your risk tolerance, how close you are to reaching your goals, the amount of investment income you hope to achieve, etc.

But, as a data point, I'm either 85% or 100%, depending on how you look at things.
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Re: "The Markets" as a % of your overall investment portfoli

Postby ruralavalon » Mon Jul 01, 2013 12:16 pm

20% home
80% stocks and bonds
no collectibles, metals etc.
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Re: "The Markets" as a % of your overall investment portfoli

Postby feh » Mon Jul 01, 2013 12:43 pm

The only assets we have that aren't invested in "the markets" are our home and EF. They represent 20% of our net worth, so the answer to your question is 80%.

If we exclude our home, it's close to 100%.
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Re: "The Markets" as a % of your overall investment portfoli

Postby IlliniDave » Mon Jul 01, 2013 1:16 pm

About 2/3 of my net worth is financial investments and will only go up from there until I'm done working--my non-investment assets are pretty much fixed. I don't consider my home, possessions, and emergency fund to be part of my investment portfolio, so 100% of my investment portfolio is in the markets (stock and bond only).

I don't know if there's a label for my allocation, but roughly speaking I'm 50% US equities, 30% Bonds, and about 20% non-US equities. No commodities/precious metals. The 50% US equities will include a modest REIT stake by the end of the year (most people consider them an asset class unto themselves).

I'm not an MPT purist and somewhat on the aggressive side for a mid-life accumulator.
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Re: "The Markets" as a % of your overall investment portfoli

Postby nisiprius » Mon Jul 01, 2013 6:18 pm

mrsub wrote:Do you guys worry about currency risk - such as problems with the US dollar in the future? How are you hedging your bets with that?
The term "currency risk" means the risk involved in currency exchange; look it up. There is no such thing as currency risk if you only deal in one currency. To the extent that I earn, buy, and spend in my home currency, I do not experience currency risk. The only currency risk I experience is in my holdings of Total International Stock Index Fund.

The interplay of currency strength and the economy is very complicated. You will notice that most countries generally want their currency to be weak. One conspicuous episode of dollar weakening occurred from 2002-2008; I did not notice any obviously terrible effects.

I'm not too worried about currency risk. Having lived through the double-digit inflation surrounding 1980, I am very aware of inflation risk and I worry about it. But that's not the same thing. One fear about a weakening dollar is that it will make the imports we buy more expensive and increase prices, i.e. inflation. But, you'll notice that this didn't happen in 2002-2008, maybe someone better tuned into economics can explain why not.

As for how I hope to deal with inflation, supposedly equities sorta-kinda tend to have a constant-ish real return in the long run, meaning they counteract inflation over long periods of time. Within my fixed income allocation, considerably more than half of it is in explicitly inflation-indexed securities, namely TIPs and series I savings bonds. I also have annuitized about 1/4 of my portfolio and of that, half is in an explicitly inflation-indexed SPIA. So I have partial protection, of a kind.
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Re: "The Markets" as a % of your overall investment portfoli

Postby Clearly_Irrational » Mon Jul 01, 2013 8:25 pm

There are only four ways to make money: Wages, Rent, Interest, Profit

Wages I obviously try to maximize, everything else I try to have roughly equal amounts. I personally consider this a form of meta-diversification. Stocks & Bonds are both classified as "interest" in economic terms so generally "The Markets" tend to make up roughly a third of my net worth.
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Re: "The Markets" as a % of your overall investment portfoli

Postby Kevin M » Mon Jul 01, 2013 8:28 pm

mrsub, you can learn a lot relative to your questions by reading the Boglehead's Wiki (see link in signature line below). Reading about the Boglehead's Investment Philosophy (in the Wiki) will tell you a lot about the diversification and asset allocation principles that many here follow.

Do you have investments now? Are you looking for advice that you plan to take action on? If yes to both, then do you have a few thousand dollars, tens of thousands, hundreds of thousands, a few million? That, and many other things, will affect the suggestions that would be relevant to you. If your net worth is a few thousand dollars, what someone worth a few million dollars is doing may not be very relevant to you. If you are very young, then what a retired person is doing probably isn't very relevant to you.

If you really want advice specific to your situation, which is all that really matters IMO, then you might want to ask for suggestions using the "Asking Portfolio Advice" template; see link in sig. line below.

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||.......|| Suggested format for Asking Portfolio Questions (edit original post)
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Re: "The Markets" as a % of your overall investment portfoli

Postby Ged » Mon Jul 01, 2013 8:36 pm

mrsub wrote:Do you guys worry about currency risk - such as problems with the US dollar in the future? How are you hedging your bets with that?


I have about 25% of my personal net worth in my residence, which is fully paid off. I do not regard that as an investment except in as it will be part of the estate I pass on to my children.

Everything else is in 'the markets'. Roughly 50/40/10 stocks/bonds/REITs.

I don't consider dollar risk to be an issue. This is the United States of America. I do worry about risk in some other currencies which is why I don't buy stuff like emerging market bonds.
Lack of planning on your part does not constitute an emergency on my part.
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Re: "The Markets" as a % of your overall investment portfoli

Postby Default User BR » Wed Jul 03, 2013 1:24 pm

Depends on how to define "markets". About 20% of my portfolio is in the 401(k) stable-value fund. That's collection of bonds and insurance wrappers. I don't know if that's anything you'd call a "market".


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