What is your current Asset Allocation Policy and why?

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What is your current Asset Allocation Policy and why?

Postby Fat-Tailed Contagion » Wed Dec 26, 2012 2:24 pm

I am researching optimal Asset Allocation models and am curious as to what you all are doing in this area.

1. What is your current Asset Allocation Policy (Model)?

2. What is your rationale for it?

Thank you for the sharing and participation!

Here is an example -> Please criticize as much as possible!

Total US Market ------------- 18.2%
Total Int'l Market ------------ 10.9%
US Small Value---------------- 9.1%
Int'l Small Value--------------- 5.5%
Int'l Emerging Markets------- 5.5%

US REIT------------------------ 5.5%
Int'l REIT----------------------- 5.5%
US Health Care---------------- 5.5%
Energy------------------------- 3.6%
Precious Metals & Mining---- 3.6%

IT Investment Grade--------- 9.0%
TIPS---------------------------- 9.0%
LT Treasury------------------- 9.0%

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Stock ------------------------- 73.0%
Bond ------------------------- 27.0% (based on P/E 10 Earning Yield : 10 Year Treasury Yield Ratio) inspired by Ben Graham work - rebalanced monthly


US Stock--------------------- 62.5%
Int'l Stock-------------------- 37.5% (midpoint-ish of 20% recommendation and market weight)


Total Market---------------- 40.0%
Slice & Dice------------------ 60.0% (inspired by William Bernstein 'asset junkie' portfolio)


Equity ------------------------ 67.5%
"Alternative" Equity -------- 32.5% (inspired by David Swensen's Endowment portfolio)


Corporate-------------------- 33.3%
Treasury--------------------- 66.7% (inspired by David Swensen's Endowment portfolio)
Last edited by Fat-Tailed Contagion on Wed Dec 26, 2012 3:59 pm, edited 4 times in total.
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Re: What is your current Asset Allocation Policy and why?

Postby FinanceGeek » Wed Dec 26, 2012 3:17 pm

50/50 equities/fixed income (in line with sleeping well at night)
Within equity: 50/50 US/intl (in line with an approximate US/world equity weighting)
Within fixed income: 50/50 nominal/IPS (in line with my gut feel on future inflation)
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Re: What is your current Asset Allocation Policy and why?

Postby Fat-Tailed Contagion » Wed Dec 26, 2012 3:33 pm

FinanceGeek wrote:50/50 equities/fixed income (in line with sleeping well at night)
Within equity: 50/50 US/intl (in line with an approximate US/world equity weighting)
Within fixed income: 50/50 nominal/IPS (in line with my gut feel on future inflation)


Total Markets or Slice & Dice?
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Re: What is your current Asset Allocation Policy and why?

Postby nolabogle » Wed Dec 26, 2012 3:57 pm

Equity 94% / bonds 6%. I am 39 years old and in a position to accept the risk associated with this asset allocation. Stocks obviously tend to outperform bonds over the long term. I am trying to take advantage of more aggressive earlier compounding interest/returns (presuming stocks continue to outperform bonds). When I turn 50ish I'll increase my bonds holdings. I likely would not retire prior to 65 years old. So between 50 and 65 years old I presume any bear market would have adequate time to recover if I were to lose a significant portion from a market downturn.
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Re: What is your current Asset Allocation Policy and why?

Postby wesleymouch » Wed Dec 26, 2012 4:04 pm

I use the Permanent Portfolio Strategy of
25% Bonds
25% gold
25% stocks
25% cash
This has a CAGR over 9% for the past 40 years with low volatility. Most AA ignore gold and gold is what saves you when things get bad (i.e. its insurance)
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Re: What is your current Asset Allocation Policy and why?

Postby livesoft » Wed Dec 26, 2012 4:15 pm

Something like this:
Image
Why? Because it's a Fama & French small-cap and value-tilted portfolio as discussed in many books by Swedroe, Ferri, Bernstein, Merriman, Armstrong, Schultheis, et al. and mentioned many times on the forum as being superior to a 3-fund total market portfolio. As for equity:fixed_income ratio, the figure lies: 8.5% of those "bonds" are really TIAA Real Estate account.
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Re: What is your current Asset Allocation Policy and why?

Postby pastafarian » Wed Dec 26, 2012 6:10 pm

40% VTWSX Total World Stock Index
60% VMLTX Total Bond Index (Limited Term Tax Exempt in taxable)

Rationale...I tried the slice & dice recipes ala Ferri et al. Being less than 10 years from retirement I realized a couple things.
1) I needed a more elegant solution WRT to my wife's total lack of interest in AA theory/application.
2) S&D logic and research seduced me into thinking I was smarter than I am.
3) S&D induced a whole lot of tinkering by me...locked in losses .
4) I opted for the TWSM versus a combination TSM plus TISM to simplify the US/Int'l question, and eliminate a potential rebalancing issue for my wife (as a widow).
5) I like Vanguard's LifeStrategy funds, but not currently appropriate for our marginal tax bracket, and if LS held in our IRAs would eventually require TBM to be added as our Eq/FI ratio shifts.
6) Currently no TIPS based upon my reading of Otar, and Solin.
7) I'd feel comfortable with 50% TWSM-50% TBM, but don't have the need.
Last edited by pastafarian on Wed Dec 26, 2012 9:28 pm, edited 1 time in total.
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Re: What is your current Asset Allocation Policy and why?

Postby BBL » Wed Dec 26, 2012 6:37 pm

Do you mind if I modify your example? That will give you a good idea of what I think.

Thank you for the sharing and participation!

Here is an example -> Please criticize as much as possible!

Total US Market ------------- 18.2%
Total Int'l Market ------------ 10.9%
US Small Value---------------- 9.1%
Int'l Small Value--------------- 5.5%
Int'l Emerging Markets------- 5.5%

US REIT------------------------ 5.5%
Int'l REIT----------------------- 5.5%
US Health Care---------------- 5.5%
Energy------------------------- 3.6%
Precious Metals & Mining---- 3.6%

IT Investment Grade--------- 9.0%
TIPS---------------------------- 9.0%
LT Treasury------------------- 9.0%



Total US Market ------------- 15%
Total Int'l Market ------------ 15%
US Mid Value-------------------10%
US Small Value---------------- 10%
Int'l Small Value--------------- 10%
Int'l Emerging Markets------- 10%

ST Investment Grade--------- 15%
IT Treasury------------------- 15%

There you go, much cleaner, easier to manage, plenty of factor exposure [without going to the 100% RZV-type of extremes], etc.

That's what I would do from that starting point. Seat belt required - plenty of tracking error to be expected along with many TLH opportunities.

It isn't far off of what I have myself but what I consider 'optimal' does not matter because I have rigid constraints to deal with that would prevent me from implementing the ideal [as I see it]. Knowing what I know now and starting from scratch I'd do something very close to the 'Larry'.
Last edited by BBL on Wed Dec 26, 2012 6:49 pm, edited 1 time in total.
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Re: What is your current Asset Allocation Policy and why?

Postby grabiner » Wed Dec 26, 2012 6:49 pm

Age: 44

US Large Growth: 5%
US Large Value: 15%
US Small Growth: 5%
US Small Value: 15%

US REIT: 5%
Foreign REIT: 5%

Developed Large: 15%
Emerging Large: 10%
Developed Small: 10%
Emerging Small: 5% (would be higher if the ETFs weren't so expensive)

Bonds: 10%

The risk is comparable to a 100% stock portfolio; for example, I lost over 60% in 2007-2009. I never recommend a portfolio this aggressive on the board; if it's the right portfolio for you, then you know enough to ignore the advice.

My portfolio has been like this since 2004, with the only changes caused by the addition of new options; for example, I didn't have any foreign REITs until Vanguard added a fund.
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Re: What is your current Asset Allocation Policy and why?

Postby Quasimodo » Wed Dec 26, 2012 7:24 pm

My wife and I have 80% of retirement savings divided into equal portions of Vanguard's Prime Money Market Fund (VMMXX), Vanguard Long Term Bond ETF (VGLT), Vanguard World Stock ETF (VT) and Central Gold Trust (GTU), periodically rebalancing when something gets beyond 35% of the total, or below 15%. This is a version of the "Permanent Portfolio" strategy.

The remaining 20% is in whatever looks good this week, which is currently mostly Vanguard Mortgage Backed Bonds (VMBS) with a small amount in PIMCO's Short Strategy Fund (PSSDX).

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Re: What is your current Asset Allocation Policy and why?

Postby STC » Wed Dec 26, 2012 8:00 pm

Age 33.

23% TSM
12% US Small Value
13% Developed Intl
12% Emerging markets
5% Intl Small Value
5% US REIT
5% Intl REIT
15% TBM
15% TIPS/iBonds

So 35/30/10/25 - us equity / intl equity / REIT / Fixed Income
Last edited by STC on Wed Dec 26, 2012 8:02 pm, edited 1 time in total.
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Re: What is your current Asset Allocation Policy and why?

Postby peppers » Wed Dec 26, 2012 8:01 pm

S & P 500 54%

Sm-Mid 34%

globalmegacorp 12%


Total Bond 70%

GNMA 22%

Inter-Invest Grade 8%
"..the cavalry ain't comin' kid, you're on your own..."
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Re: What is your current Asset Allocation Policy and why?

Postby Fat-Tailed Contagion » Wed Dec 26, 2012 8:02 pm

BBL wrote:Do you mind if I modify your example? That will give you a good idea of what I think.

Thank you for the sharing and participation!

Here is an example -> Please criticize as much as possible!

Total US Market ------------- 18.2%
Total Int'l Market ------------ 10.9%
US Small Value---------------- 9.1%
Int'l Small Value--------------- 5.5%
Int'l Emerging Markets------- 5.5%

US REIT------------------------ 5.5%
Int'l REIT----------------------- 5.5%
US Health Care---------------- 5.5%
Energy------------------------- 3.6%
Precious Metals & Mining---- 3.6%

IT Investment Grade--------- 9.0%
TIPS---------------------------- 9.0%
LT Treasury------------------- 9.0%



Total US Market ------------- 15%
Total Int'l Market ------------ 15%
US Mid Value-------------------10%
US Small Value---------------- 10%
Int'l Small Value--------------- 10%
Int'l Emerging Markets------- 10%

ST Investment Grade--------- 15%
IT Treasury------------------- 15%

There you go, much cleaner, easier to manage, plenty of factor exposure [without going to the 100% RZV-type of extremes], etc.

That's what I would do from that starting point. Seat belt required - plenty of tracking error to be expected along with many TLH opportunities.

It isn't far off of what I have myself but what I consider 'optimal' does not matter because I have rigid constraints to deal with that would prevent me from implementing the ideal [as I see it]. Knowing what I know now and starting from scratch I'd do something very close to the 'Larry'.


BBL,

I love it! Thank you so much!

Questions:

1. What rationale did you use in reconfiguring the AA as such?

2. What would your 'optimal' non-constrained AA look like?

Thank you for sharing!

Fatty
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Re: What is your current Asset Allocation Policy and why?

Postby Wolkenspiel » Wed Dec 26, 2012 9:04 pm

Target exposure (rebalanced monthly w/ new money):
Cash: 3%
Gold: 7%
Fixed income: 40% (split 66/33 US vs foreign; mostly active funds)
Equity: 80% (split 50/50 US vs international; mostly index funds w/ some small/value tilt)

Rationale: I like round numbers and shiny things

Obviously, there's a reason I don't dispense investment advice around here...
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Re: What is your current Asset Allocation Policy and why?

Postby Johm221122 » Wed Dec 26, 2012 9:14 pm

35% 500 index
10% international
8% international small
10% extended market
7% small value
14% stable value/savings bonds
10% income fund(will change to bond index when yield hits 4%)
5% Reits
1% cash
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Re: What is your current Asset Allocation Policy and why?

Postby tainted-meat » Wed Dec 26, 2012 9:17 pm

Age 26:

100% stocks
0% bonds

20% Large US
20% Mid US
20% Small US
30% Developed International
10% Emerging Markets

I want to get the International Allocation between 50-60% and will do so by putting all of my 401k contributions for 2013 to the Emerging Markets fund. I have no rhyme or reason for my allocation. This is sort of like a game to me.
Last edited by tainted-meat on Wed Dec 26, 2012 9:20 pm, edited 2 times in total.
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Re: What is your current Asset Allocation Policy and why?

Postby sscritic » Wed Dec 26, 2012 9:17 pm

Wolkenspiel wrote:Target exposure (rebalanced monthly w/ new money):
Cash: 3%
Gold: 7%
Fixed income: 40% (split 66/33 US vs foreign; mostly active funds)
Equity: 80% (split 50/50 US vs international; mostly index funds w/ some small/value tilt)

Rationale: I like round numbers and shiny things

130% is quite round, but I prefer 150%. Why not make cash 10%; gold 20%; fixed 40%; and equity 80%? That's not only much rounder, but follows the powers of 2: 1, 2, 4, and 8. The only thing that would make it better would be another 160% holding to get one more power of 2 in there.
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Re: What is your current Asset Allocation Policy and why?

Postby Tonen » Wed Dec 26, 2012 9:45 pm

Naive diversification, with an eye to tax efficiency, and minimising number of funds (4).
50/50 stock/bond;
50% domestic/international stock;
50% tilt to small/ value
Bonds 50% inflation linked, 50% cash/coupon

Gradually increasing bonds changing till reach 50% bonds, 50% stock at retirement.

Bonds all direct from Reserve Bank (I'm an Aussie)

Stock split is as widely diversified as practical, in an easy to remember triangular number format
Domestic equity ...... - 40% - DFA Australian Core Equity Strategy
International Equity.. - 30% - DFA Global Core Equity Trust AUD Unh. Class
REITs ....................... - 20% - DFA Global Real Estate Trust (10% domestic, 10% international)
EM ........................... - 10% - DFA Emerging Markets Trust

DFA and Vanguard In Aus are similar cost and its much simpler to get the small/ value tilts with DFA

The "why" is that I personally find whenever I am tempted to fiddle with things, remembering "nobody knows nothing" means the feeling soon passes, and the "each-way" bets in just about everything in the allocation always wins out in my mind.
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Re: What is your current Asset Allocation Policy and why?

Postby aquifer » Wed Dec 26, 2012 9:51 pm

100% Vanguard Target Retirement 2035
TR 2035 breaks down as 60% Total Stock Market, 26% Total International Stock Market, and 14% Total Bond Market

My rationale is simple: I have no idea what is going to happen in the future, so I'll just own pretty much everything. The comforting thing is that the experts have no idea either! I have a high tolerance for volatility so the low bond allocation for my age is fine with me. TR will automatically get more conservative over time which makes sense to me. For tax purposes I will eventually invest in the three underlying funds individually, but my plan calls for matching the overall allocation of TR 2035 going forward.
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Re: What is your current Asset Allocation Policy and why?

Postby stan1 » Wed Dec 26, 2012 9:56 pm

Age 45 with partial COLA'd FERS pension, savings rate >30%.
Partnered, but manage portfolios separately. If federal government recognizes same sex marriages/partnerships, we'd have a prenup so I would likely still manage each portfolio separately.

General plan is as follows although at any given time I may be off by a few percentage points:
Equities (3/5 Domestic, 2/5 International):
18% TSM (2/3 of domestic) (Vanguard TSM Mutual Fund, TSP C/S Funds)
9% SCV (1/3 of domestic) (Vanguard Small Cap Value, iShares S&P 600 Value)
6% EAFE (1/3 of intl) (VEA, VXUS)
6% EM (1/3 of intl) (VWO, VXUS)
6% Small Intl (1/3 of intl) (VSS, VINEX (Roth), VXUS)

5% Domestic REIT (plus a lot of REITs in Vanguard SCV)

Bonds:
5% TIPS Fund + I Bonds
45% TSP G Fund (was 22.5% G Fund and 22.5% F Fund for about 15 months)

Notes:
Paid off mortgage in 2012 by selling legacy PRIMECAP holding and Vanguard CA Intermediate Muni.
As I build my taxable account back up in 2013 and 2014 I'll likely go back to 5% CA Munis and lower TSP G Fund to 40%.
Hodgepodge of SCV and international holdings is a result of tax loss harvesting back in 2008.
What I've given up on since converting to Boglehead portfolio in 2007: EWX (Emerging Small), RWX/VNQI (International REITs)
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Re: What is your current Asset Allocation Policy and why?

Postby HongKonger » Wed Dec 26, 2012 10:07 pm

Age 40

Total US: 15%
US Small: 5%
US Mega: 7.5%
EAFE Large: 15%
EAFE Small: 10%
Dev Asia Small: 7.5%
Em Asia: 7.5%
HSI Index: 7.5%
HKG Reits: 15%
HKG Bonds: 10%

Started as a Merriman because it made sense to me and then got tweaked along the way due to withholding taxes. I also have a fun money acct with casinos, property and airlines.
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Re: What is your current Asset Allocation Policy and why?

Postby FinanceGeek » Wed Dec 26, 2012 10:54 pm

Fat-Tailed Contagion wrote:
FinanceGeek wrote:50/50 equities/fixed income (in line with sleeping well at night)
Within equity: 50/50 US/intl (in line with an approximate US/world equity weighting)
Within fixed income: 50/50 nominal/IPS (in line with my gut feel on future inflation)


Total Markets or Slice & Dice?


The equity portion is Slice & Dice. and follows Merriman's Ultimate Buy and Hold portfolio pretty closely. I implemented this years ago - be warned that Merriman no longer publishes updates to this portfolio. But I stick with it (and without TrevH's 4 slice simplification) because it has worked well so far. Also because it has accumulated sufficient unrealized capital gains to discourage me from selling anything outside of re-balancing. In practice I re-balance once or twice a year as values of the various components drift.
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Re: What is your current Asset Allocation Policy and why?

Postby Wolkenspiel » Wed Dec 26, 2012 11:46 pm

sscritic wrote:
Wolkenspiel wrote:Target exposure (rebalanced monthly w/ new money):
Cash: 3%
Gold: 7%
Fixed income: 40% (split 66/33 US vs foreign; mostly active funds)
Equity: 80% (split 50/50 US vs international; mostly index funds w/ some small/value tilt)

Rationale: I like round numbers and shiny things

130% is quite round, but I prefer 150%. Why not make cash 10%; gold 20%; fixed 40%; and equity 80%? That's not only much rounder, but follows the powers of 2: 1, 2, 4, and 8.
That's my dream AA :sharebeer
Unfortunately, most of my savings are in a 401k, where using leverage is tricky, and I prefer my taxable portfolio to survive backtesting in a 2008/2009-like scenario with some room to spare (I'm insane, but not stupid - or was that the other way around?). So this will have to wait a bit.
The only thing that would make it better would be another 160% holding to get one more power of 2 in there.
Now you're just teasing me...
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Re: What is your current Asset Allocation Policy and why?

Postby BBL » Thu Dec 27, 2012 7:40 am

Total US Market ------------- 15%
Total Int'l Market ------------ 15%
US Mid Value-------------------10%
US Small Value---------------- 10%
Int'l Small Value--------------- 10%
Int'l Emerging Markets------- 10%

ST Investment Grade--------- 15%
IT Treasury------------------- 15%

BBL,

I love it! Thank you so much!



Questions:

1. What rationale did you use in reconfiguring the AA as such?

2. What would your 'optimal' non-constrained AA look like?

Thank you for sharing!

Fatty


No problem - glad you like it.

This is just my humble opinion here - most of these topics, as you know, are heavily debated, but to answer your questions:

From that starting point posted in your example I saw a few things that I never like.
1. Too many components
2. False precision [to the tenth? 9.1 of this 18.2 of that]
3. Sector plays [health care, energy, that metals fund]

So for the equity first say goodbye to the sector plays. The split of US REIT/INT Real estate funds could have stayed but I do not think you'll miss much without them and you need your tax advantaged space [which is where you would want US REIT] for too many other things [bonds, domestic value] so out they went - -close call on that but simplicity won. If I was forced to keep one it would have been the international - FWIW.

Next I took the non sector/real estate and reweighted them. A split of 15% each TSM/TISM is a solid starting point so they got equal weighting. I added the US mid value at 10 [I like the value play across the size dimensions, not solely in small]. The rest of the equity components were already there I just reweighted them.

For the FI - not many good choices these days. I don't like anything beyond int term [really I'd start with the max I bond allocation consider CDs as well and take it from there]. But if I had to pick funds I'd take that 50/50 split of short corporates and intermediate treasuries and live with it.

The end product is 70/30 equity/FI which is 50/50 domestic/international with plenty of exposure to the FF factors that the original proposal was not shy in tilting toward. The fewer number of equity and FI components would be easier to manage and rebalance. That's pretty much that.

My optimal, starting from scratch? Somewhat similar to the Larry, but higher equity and not nearly as tilted to small and value as one would associate with that [the pure Larry fat tail avoidance] concept:

10 Emerging market small value
10 International small blend
10 TISM
10 US small value
10 US mid value
10 TSM

20 Short corporates
20 Int treasuries

^ on that FI assume I would also have max I bonds and maybe some CDs in the mix as well. Those are the funds I'd use.

Rebalance with wide bands and TLH at every opportunity. That is what I would do if I could hit the 'reset' button. Many would disagree. :happy
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Re: What is your current Asset Allocation Policy and why?

Postby DaleMaley » Thu Dec 27, 2012 7:59 am

My target is 60:40 and I am at 61:39.

Why 60:40? I am getting close to retiring from my 1st job, and this seems to be a good mix for retirement. I could drop it to 50:50 to lower risk, but in the grand scheme of things, there is really not much difference between 60:40 and 50:50.

Here are my allocations:

Total Bond Market-----------19%
TIPS Fund.....................14%
Cash............................6%
=============================
39% Bonds

REIT Fund.....................7%
US Large Cap.................24%
US Large Cap Nat Resourc..4% (New Era fund)
US Mid Cap...................10%
US Small Cap...................4%
European LC....................7%
Pacific LC.......................3%
Emerging Markets..............2%
=============================
stocks.........61%

I kind of split my bonds between Total Bonds and TIPs fund. I hold TIPs fund as inflation hedge.

The REIT fund and the New Era fund are also inflation hedges.

I am more of a Jack Bogle type 20% of stocks should be foreign..........versus a 50:50 split between US and foreign.
Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. – Warren Buffett
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Re: What is your current Asset Allocation Policy and why?

Postby Peter Foley » Thu Dec 27, 2012 1:04 pm

My "model" calls for 40% equities, 55% bonds and 5% real estate. It is roughly the age in bonds approach. Within broad asset classes, my goal is 20% to 25% max in international equities with the rest in total stock market. Ideally I would like to be 50% total bond and 50% TIPs on the bond side, but I have access to stable value funds which I think are safer than total bond at this point in our current interest rate cycle.

With the exception of the market segment funds, the AA you propose might be fine for someone who wanted to manage that much diversity. I do not, and my wife does not have the interest to handle something that complex should something happen to me. I not read anything that leads me to believe that the market segment funds add much to a portfolio in terms of total return over long period of time.
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Re: What is your current Asset Allocation Policy and why?

Postby Default User BR » Thu Dec 27, 2012 3:30 pm

Code: Select all
US Equity         42.00%
   Large Cap      12.00%
   Large Value     6.00%
   Small Cap       6.00%
   Small Value    12.00%
   REIT            6.00%

Intl Equity       18.00%
   Large Cap       4.50%
   Large Value     4.50%
   Small Cap       6.00%
   Em. Markets     3.00%

Fixed             40.00%
   Bonds          20.00%
   Stable-value   20.00%


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Re: What is your current Asset Allocation Policy and why?

Postby ruralavalon » Thu Dec 27, 2012 3:58 pm

Retired. Equity/bond allocation 50/50, with some small cap tilt (reason: half convinced of FF analysis),
about 1/3 of equities in international (reason: this Vanguard paper - https://personal.vanguard.com/pdf/icriecr.pdf ).

Domestic Equity
24% Total Stock Market Index Fund
05% Small Cap Value Index Fund
05% REIT Index Fund

International equity
13% Total International Stock Market Index Fund
05% Precious Metals & Mining (~90% Int'l)

Fixed (reason: 1/2 treasury, 1/2 corporate)
26% Treasury STRIPS, laddered
21% Intemediate Term Investment Grade
01% cash
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Re: What is your current Asset Allocation Policy and why?

Postby windwhispers » Fri Dec 28, 2012 1:00 am

1. In answer to "What is your current Asset Allocation Policy (Model)?"

Cash 8%
Bonds 52%
Large-Cap Stocks 13%
Mid/Small Cap Stocks 11%
Int'l Stocks 16%

2. and, "What is your rationale for it?"

I prefer the approximate "age in bonds " approach (I'm sixty-one).
Financial Engine's Personal On-line Advisor calculates the above percentages (according to my risk profile) in my company's 401K.
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Re: What is your current Asset Allocation Policy and why?

Postby zaboomafoozarg » Fri Dec 28, 2012 1:10 am

75% stocks, 25% bonds (age - 5 in bonds with a 25% minimum)

Stocks:
60% domestic (90% total market, 10% small cap value)
30% international (90% total market, 10% small cap)
10% REITs (2/3 domestic REIT, 1/3 international REIT)

Bonds:
80% domestic total bond market
20% I Bonds
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Re: What is your current Asset Allocation Policy and why?

Postby grap0013 » Fri Dec 28, 2012 1:37 pm

50% Domestic small cap value
25% developed international small cap value
25% emerging market small cap/value

Why? We have 80+ years domestically, 40+ years developed international, and 20+ years emerging markets data that say the best risk adjusted returns lie here. They are statistically significant AND it's been true since Fama/French first published their data 1992-present. Furthermore, the logic makes sense to me. The odds are heavily in my favor to make a truckload of money with this strategy and I'll likely be able to go to part time work by 45-50 years old.

What's the downside risk? I trail the market by a couple percent annualized. It's not like there is some blackswan unique to these assets. If they were to go to zero, the zombies are in full force (which actually looks kinda fun after watching too much Walking Dead). Capitulation is not even on my radar. I have more dicipline than the average person in other areas of my life and I see this no differently. Maybe I sound a little overconfident, but I think you need conviction in your strategy or every little wisp of wind will tempt you to change directions.

It's also all about some perspective. I have spent a considerable amount of time in a third world country and retirement is clearly a first world problem. We all have it pretty good.

Finally, I dislike being like everybody else and I don't know anybody else with this portfolio.
If you can't explain it simply, you don't understand it well enough.
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Re: What is your current Asset Allocation Policy and why?

Postby Fat-Tailed Contagion » Fri Dec 28, 2012 1:59 pm

grap0013 wrote:50% Domestic small cap value
25% developed international small cap value
25% emerging market small cap/value

Why? We have 80+ years domestically, 40+ years developed international, and 20+ years emerging markets data that say the best risk adjusted returns lie here. They are statistically significant AND it's been true since Fama/French first published their data 1992-present. Furthermore, the logic makes sense to me. The odds are heavily in my favor to make a truckload of money with this strategy and I'll likely be able to go to part time work by 45-50 years old.

What's the downside risk? I trail the market by a couple percent annualized. It's not like there is some blackswan unique to these assets. If they were to go to zero, the zombies are in full force (which actually looks kinda fun after watching too much Walking Dead). Capitulation is not even on my radar. I have more dicipline than the average person in other areas of my life and I see this no differently. Maybe I sound a little overconfident, but I think you need conviction in your strategy or every little wisp of wind will tempt you to change directions.

It's also all about some perspective. I have spent a considerable amount of time in a third world country and retirement is clearly a first world problem. We all have it pretty good.

Finally, I dislike being like everybody else and I don't know anybody else with this portfolio.


I admire your convictions and perspective. All the best!
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Re: What is your current Asset Allocation Policy and why?

Postby englishgirl » Fri Dec 28, 2012 2:18 pm

30% US total stock market
30% international stock
20% total bond market
20% TIPs

Rationale? 60:40 helps me sleep at night.

Taylor recommended to split bonds 50:50 between TBM and TIPs and that seemed good to me.

As for the 50:50 US and International split, I have a lot of money (for me) in a UK-based FTSE index (left in an old 401k-type account that is proving almost impossible to move). I add Total International to make it up to 50% of my equities/30% of my portfolio, and it is currently sitting at 25% UK, 5% TISM. The aim is that as the years go by the relative amount of TISM will increase vs. UK stocks only, as I am not adding to the UK index any more. Why not market cap of 60% international, or why not the common mix of 20-30% of stocks being international? I'm not sure - 20% seems so little, and I couldn't do that anyway as I can't move the current account that is 25% of my entire portfolio. 60% in international seems a bit excessive, and I like round numbers so 50% seemed just right.
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Re: What is your current Asset Allocation Policy and why?

Postby NAVigator » Fri Dec 28, 2012 2:41 pm

    40%....Total Stock Market Index
    13%....Total Int'l Stock Market Index
    7%......REIT Index
    40%....Total Bond, TIPS, I-Bonds

I prefer simplicity. I am pleased to have a 60/40 allocation that allows for peace of mind. I rebalance when necessary. It may be a bit aggressive for a retired person, but my children are the beneficiaries with longer investing horizons.

Jerry
"I was born with nothing and I have most of it left."
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Re: What is your current Asset Allocation Policy and why?

Postby kenyan » Fri Dec 28, 2012 2:48 pm

75/25 Equities/Bonds

Equities are:
12.5% TSM
12.5% Large Value
20% Small Value
12.5% TISM
12.5% International LV
20% International Small
10% REIT

Bonds are:
60% Intermediate/TBM
40% TIPS

Rationale: FF-tilted portfolio. Modified version of the TrevH 4-slice portfolio, adding REITs for diversification. I also wanted to ensure that I owned TSM and TISM, which the 4-slice portfolio does not. I might split the REITs between domestic and foreign in the future, though I'm not sure if I want slices that small.

As for the 60/40 bond split, I'm not quite sure why, but it's in my IPS and there's no compelling reason to change it.
Retirement investing is a marathon.
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Re: What is your current Asset Allocation Policy and why?

Postby hpowders » Fri Dec 28, 2012 2:51 pm

At 67.75 years old, my IRA consists of 60% growth stocks, 30% corporate bonds and 10% cash. Why? I don't need this money, thankfully. I have a terrific pension + SS with no debt, so I can afford to be a bit more aggressive. :happy
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Re: What is your current Asset Allocation Policy and why?

Postby bpp » Fri Dec 28, 2012 7:50 pm

Stocks: 50/50 Japan/non-Japan
Bonds: 50/50 Japan/non-Japan

% in bonds: Age minus 10 until age 60, from which point 50/50 forever.

Rationale: A little of everything, nothing too clever (to avoid outsmarting myself).
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Re: What is your current Asset Allocation Policy and why?

Postby zaboomafoozarg » Sat Dec 29, 2012 1:32 am

TAINTED-MEAT wrote:I have no rhyme or reason for my allocation. This is sort of like a game to me.


The goal is to come to something you can stick with without messing around and locking in losses. If there's no rhyme/reason to it, it would probably be harder to stick with it.
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Re: What is your current Asset Allocation Policy and why?

Postby maitrina » Sat Dec 29, 2012 6:26 am

Stable Value 20%
Bond Index 10%
Inflation Bond Index 15%
TIAA Real Estate 15%
US Equity Index 20%
Small Cap Blend Index 5%
International Equity Index 10%
Emerging Market Index 5%

Our AA has evolved based on Boglehead insights (thanks so much!) and a desire for a portfolio of well-balanced asset classes appropriate for our ages, circumstances and needs.

I wish everyone health and happiness in the New Year.
"I'd like to live like a poor man with lots of money." - Pablo Picasso
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Re: What is your current Asset Allocation Policy and why?

Postby DaleMaley » Sat Dec 29, 2012 6:37 am

Fat-Tailed Contagion wrote:I am researching optimal Asset Allocation models and am curious as to what you all are doing in this area.


I would say a major factor for the total split between stocks and bonds is age driven. As we grow older we tend to reduce risk by increasing bonds and decreasing stocks.

Image

My chart comes from several data sources including Vanguard customers, TIAA-CREF members, BW survey, and self-surveys by Bogleheads. All of these different surveys show the same trend to reduce risk as we age by reducing the stock allocation.

For example in 2007, the Boglehead survey results were......% stocks = 114 minus your age. If you are 50 years old, your AA would be 64:36.

The R-squared was about 50%, meaning about 1/2 of the variation in stocks vs bonds was explained by the differences in age.

I updated the 2007 Bogleheads self-survey in 2011 to see if risk levels changed after the Sub-Prime Crash of 2008. The new regression formula was 106 minus 92% of your age. If you are 50 years old, your AA would be 60:40. Probably not statistically significantly different from the 2007 results given the small sample size and use of self-polling data.
Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. – Warren Buffett
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Re: What is your current Asset Allocation Policy and why?

Postby rmark1 » Sat Dec 29, 2012 8:58 am

40% total US stock, 40% total int'l stock, 15% reit, 5% cash, expecting reduced SS + my wifes reduced fixed pension to fill fixed income needs at retirement.
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Re: What is your current Asset Allocation Policy and why?

Postby tsturbo » Sat Dec 29, 2012 9:40 am

57% equities
2/3 total stock
1/3 total international

43% bonds
1/3 Tips
1/3 Intermediate Treasuries
1/3 Total bond

All Vanguard funds.
Age - 10 years for bond allocation until I reach age 60, then will do 50/50
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Re: What is your current Asset Allocation Policy and why?

Postby IGoCougsI » Mon Dec 31, 2012 12:49 am

Age: 36

Vanguard Large-Cap Index Fund 10.00%
Vanguard 500 Index Fund 4.00%
Vanguard Growth Index Fund 5.00%
Vanguard Value Index Fund 7.50%
Vanguard Small-Cap Index Fund 9.00%
Vanguard Total International Stock Index Fund 9.00%
OAKMARK INTERNATIONAL FUND CLASS I 5.00%
OAKMARK INTERNATIONAL SMALL CAP FUND CLASS I 2.50%
Vanguard Emerging Markets Stock Index Fund 4.00%
COHEN & STEERS REALTY SHARES FUND 12.00%
Vanguard Global ex-U.S. Real Estate Index Fund 3.00%


Vanguard Intermediate-Term Treasury Fund 12.50%
Vanguard Total Bond Market Index Fund 2.75%
PIMCO FOREIGN BOND (US DOLLAR-HEDGED) 3.25%
Vanguard High-Yield Corporate Fund 3.50%
Vanguard Prime Money Market Fund 7.00%


Rationale:
Broad asset allocation with a slight value-tilt...need to increase the value tilt. Gets me out on the EF, large slug of IT Treasuries as an deflation hedge, large slug of REITs as hedge against inflation. Read Intelligent Asset Allocator last year, 3-years after implementing this portfolio. Very much appreciated his work and learned a thing or two...needless to say!!

Implemented this portfolio about 4 years ago an have rebalanced twice...rebalance when an asset class is >2% from target. I've been pleased with the results, but haven't done too much in analyzing portfolio to benchmarks. All assets are in a taxable portfolio so moving from one fund to another is challenging.
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Re: What is your current Asset Allocation Policy and why?

Postby Village Idiot » Tue Jan 01, 2013 9:59 am

IGoCougsI wrote:Age: 36

Vanguard Large-Cap Index Fund 10.00%
Vanguard 500 Index Fund 4.00%
Vanguard Growth Index Fund 5.00%
Vanguard Value Index Fund 7.50%
Vanguard Small-Cap Index Fund 9.00%
Vanguard Total International Stock Index Fund 9.00%
OAKMARK INTERNATIONAL FUND CLASS I 5.00%
OAKMARK INTERNATIONAL SMALL CAP FUND CLASS I 2.50%
Vanguard Emerging Markets Stock Index Fund 4.00%
COHEN & STEERS REALTY SHARES FUND 12.00%
Vanguard Global ex-U.S. Real Estate Index Fund 3.00%


Vanguard Intermediate-Term Treasury Fund 12.50%
Vanguard Total Bond Market Index Fund 2.75%
PIMCO FOREIGN BOND (US DOLLAR-HEDGED) 3.25%
Vanguard High-Yield Corporate Fund 3.50%
Vanguard Prime Money Market Fund 7.00%



WoW...That portfolio mix reminds me of fruit salad.

Single- 39yrs
Simple 3-fund portfolio here. 60/40
"The clairvoyant society of London will not meet on Tuesday due to unforeseen circumstances"
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Re: What is your current Asset Allocation Policy and why?

Postby af895 » Tue Jan 01, 2013 11:05 am

I'm in my late 30's with 20 years to go to retirement.

I reduced my fixed income from 40% to 25% in November and, on reflection while re-reading Bernstein's "Four Pillars" and "Investor's Manifesto", to 0% in December. Why? I realized my government defined benefits pension could be viewed as fixed income and the bond index fund I had (Canadian DEX Universe) held a lot of government bonds.

So, here's where I'm at with a 100% equity portfolio:

1/3 domestic Canadian equity (S&P/TSX index fund)
1/3 US equity (S&P500 index fund)
1/3 Intl equity (MSCI EAFE index fund)

I'm sitting some cash that I'll DVA into more of the above in 2013.
Last edited by af895 on Tue Jan 01, 2013 11:19 am, edited 1 time in total.
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Re: What is your current Asset Allocation Policy and why?

Postby JamesSFO » Tue Jan 01, 2013 11:15 am

I've basically completed my move to the three fund portfolio in 2012: Using Total Stock, Total Intl, and Total Bond.

Just turned 40 in December, and am about 70% stock/30% bond, and within stock about 37% Intl. My bond position is total bond all held in tax deferred.

Edit to add: I have a small IBond position <$20K + a few small stocks/ETFs that are lurking also <$20K.
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Re: What is your current Asset Allocation Policy and why?

Postby nedsaid » Tue Jan 01, 2013 2:20 pm

48 percent US Stocks, 18 percent International Stocks, 34 percent bonds and cash.

I have tilted towards mid-cap and small-cap. The portfolio tilts towards value.

26.5 percent in index funds and index based ETFs (stocks and bonds). About 14 percent individual stocks that I rarely trade. A lot of no-load funds. About 7 percent load funds with lower expense ratios from a broker.

As I get older, the percentage of funds indexed increases and the percentage of individual stocks decreases. The mutual funds are mostly no-load and lower than average expenses.
A fool and his money are good for business.
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Re: What is your current Asset Allocation Policy and why?

Postby rnitz » Tue Jan 01, 2013 8:51 pm

Age: 54, nearing retirement

Equities - 65%
- Total US Market Index - 70%
- Total Intl Market Index - 30%

Bonds - 35%
- Total Bond Index - 35%
- CA Tax Free - 15%
- TIPS - 50%

Reasons:
1. Keep it simple (stupid)
2. Heavy on equities (despite near retirement) because we're comfortable enough to be investing for our kids (i.e. long time horizon)
3. I'm planning on increasing Int'l equities this year to be closer to total market cap to add diversification from the US/Dollar due to the long term forecast for deficits and quantitative easing (i.e. printing money).
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Re: What is your current Asset Allocation Policy and why?

Postby Index Fan » Tue Jan 01, 2013 10:15 pm

In early retirement- approximately 40% equities / 60% fixed income

roughly:

15% total stock market index
10% REIT index
15% total international stock index

10% short term bond index
25% total bond market index
25% TIPS fund

reason: need and willingness to take risk. I prefer simplicity as well. Over the past several years, I've moved from a 60/40 to a 40/60 AA. 40%-50% equities is my comfort range.
"Optimum est pati quod emendare non possis." | -Seneca
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Re: What is your current Asset Allocation Policy and why?

Postby zebrafish » Tue Jan 01, 2013 10:34 pm

Age: early 40s

100% Vanguard LifeStrategy Growth Fund (20% Total Bond Market, 56% TSM, 24% TISM)

Simple, clean, easy
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