WendyMay
Member
When it comes to asset allocation, the sky really is the limit. There's no end to the arrangements and strategies to take advantage of. From the simple 50% equities, 50% bonds split to the much more complex time horizon, bond variation, stock variation, large-cap, small-cap, developing market, developed market conglomeration, it's up to the individual investor to settle on what makes him or her feel best. We each have different risk/reward tolerances and it's certainly possible to come up with a mix of assets that will allow each one of us to sleep well at night while making a decent return.
If you haven't already done so, you might want to read a few posts that lead to this one. They are:
What's Portfolio Rebalancing?
What's Asset Allocation?
Pros & Cons of Portfolio Rebalancing
Most people don't really care about the theory and that's why I thought I'd write this post. To offer you real life allocations. Take a look at what I share down below to get a feel for what various percentages of real allocations look like. Then, share some comments on what you like about each and don't like about each. I'd love to get your opinion on all of this.
Now, just so you know, I'm only going to give some very basic asset allocations below. I'll add some ETF ticker symbols to each for good measure, but I won't get into much depth. In the comments and discussion that follows, we can dive deeper into the technical aspects of everything. Also, there are many different asset allocation strategies, such as age based, life-cycle funds, constant weight, tactical, insured, and dynamic. Discussion is welcome for each.
Example Asset Allocation
Stocks
Small-Cap Growth Stocks – 25% (VBK)
Large-Cap Value Stocks – 15% (VYM)
International Stocks – 10% (VEU)
Bonds
Government Bonds – 15% (VGLT)
High Yield Bonds – 25% (VWEHX)
Cash
Money Market – 10%
Please take these ETFs with a grain of salt. Do your own research when purchasing or researching investments. Also realize that you may not have to purchase separate small cap, large cap, growth, and value stock ETFs if an overall market ETF may serve you just as well. I like Vanguard's VOO because it covers the entire S&P 500. Many people like that ETF. Of course, if you'd like the lion's share of your equity holdings to be small cap stocks or something similar, then you'll need to keep the investments separate.
Here are three different common allocations based on investor type:
Aggressive Investor
Large-Cap Stocks - 20%
Mid-Cap Stocks - 20%
Small-Cap Stocks - 20%
International Stocks - 20%
Emerging Markets Stocks - 10%
Intermediate Bonds - 10%
Short-Term Bonds - 0%
Moderate Investor
Large-Cap Stocks - 20%
Mid-Cap Stocks - 20%
Small-Cap Stocks - 10%
International Stocks - 15%
Emerging Markets Stocks - 5%
Intermediate Bonds - 30%
Short-Term Bonds - 0%
Conservative Investor
Large-Cap Stocks - 25%
Mid-Cap Stocks - 10%
Small-Cap Stocks - 10%
International Stocks - 5%
Emerging Markets Stocks - 0%
Intermediate Bonds - 40%
Short-Term Bonds - 10%
Obviously, you'll need to research your own ETFs for those above examples, but that should point you in the right direction. If you aren't familiar with companies who offer ETFs, check out Vanguard. They're very inexpensive and I like them a lot.
Also, you might want to look at different sectors of the market to further diversify into. I like having a real estate ETF in my mix (VNQ), just because I love real estate. To learn more about that, check out this really great post by Lyn Alden.
And finally, please do comment below. Tell me what type of asset allocation mix you prefer and why.
If you haven't already done so, you might want to read a few posts that lead to this one. They are:
What's Portfolio Rebalancing?
What's Asset Allocation?
Pros & Cons of Portfolio Rebalancing
Most people don't really care about the theory and that's why I thought I'd write this post. To offer you real life allocations. Take a look at what I share down below to get a feel for what various percentages of real allocations look like. Then, share some comments on what you like about each and don't like about each. I'd love to get your opinion on all of this.
Now, just so you know, I'm only going to give some very basic asset allocations below. I'll add some ETF ticker symbols to each for good measure, but I won't get into much depth. In the comments and discussion that follows, we can dive deeper into the technical aspects of everything. Also, there are many different asset allocation strategies, such as age based, life-cycle funds, constant weight, tactical, insured, and dynamic. Discussion is welcome for each.
Example Asset Allocation
Stocks
Small-Cap Growth Stocks – 25% (VBK)
Large-Cap Value Stocks – 15% (VYM)
International Stocks – 10% (VEU)
Bonds
Government Bonds – 15% (VGLT)
High Yield Bonds – 25% (VWEHX)
Cash
Money Market – 10%
Please take these ETFs with a grain of salt. Do your own research when purchasing or researching investments. Also realize that you may not have to purchase separate small cap, large cap, growth, and value stock ETFs if an overall market ETF may serve you just as well. I like Vanguard's VOO because it covers the entire S&P 500. Many people like that ETF. Of course, if you'd like the lion's share of your equity holdings to be small cap stocks or something similar, then you'll need to keep the investments separate.
Here are three different common allocations based on investor type:
Aggressive Investor
Large-Cap Stocks - 20%
Mid-Cap Stocks - 20%
Small-Cap Stocks - 20%
International Stocks - 20%
Emerging Markets Stocks - 10%
Intermediate Bonds - 10%
Short-Term Bonds - 0%
Moderate Investor
Large-Cap Stocks - 20%
Mid-Cap Stocks - 20%
Small-Cap Stocks - 10%
International Stocks - 15%
Emerging Markets Stocks - 5%
Intermediate Bonds - 30%
Short-Term Bonds - 0%
Conservative Investor
Large-Cap Stocks - 25%
Mid-Cap Stocks - 10%
Small-Cap Stocks - 10%
International Stocks - 5%
Emerging Markets Stocks - 0%
Intermediate Bonds - 40%
Short-Term Bonds - 10%
Obviously, you'll need to research your own ETFs for those above examples, but that should point you in the right direction. If you aren't familiar with companies who offer ETFs, check out Vanguard. They're very inexpensive and I like them a lot.
Also, you might want to look at different sectors of the market to further diversify into. I like having a real estate ETF in my mix (VNQ), just because I love real estate. To learn more about that, check out this really great post by Lyn Alden.
And finally, please do comment below. Tell me what type of asset allocation mix you prefer and why.
