Asset Allocation

When all of your investments are in an IRA, managing your portfolio is simple:

Choose an asset allocation that fits your needs,
Find the lowest-cost way to implement that allocation (this usually means index funds or ETFs),
Stick with it.

For many investors, however, things are complicated by the fact that their portfolio spans multiple providers. For example, they [...]

{ 10 comments }

“Owning one total U.S. stock index fund is the most diversified U.S. stock portfolio one can have.” –Allan Roth in How a Second Grade Beats Wall Street
“A total market fund is not inherently bad. It is not, however, a well diversified portfolio in terms of asset class diversification.” –Larry Swedroe in What Wall Street Doesn’t [...]

{ 17 comments }

If you could select one of the following funds to serve as a diversifier for a stock-oriented portfolio, which would you choose?

Vanguard Total Bond Market Index (index fund, comparable ETF)
Vanguard Intermediate-Term Treasury Fund (index fund, comparable ETF)
Vanguard Short-Term Treasury Fund (index fund, comparable ETF)

I’m currently using Total Bond Market for the bond portion of my [...]

{ 26 comments }

If you feel a need to check your portfolio everyday (or week, or month) because you’re worried about how it’s doing, perhaps you should listen to what some part of your brain is telling you: Your risk tolerance isn’t what you thought it was.
It’s not:
“Determine your asset allocation, then stick with it.”
It’s:
“Determine an asset allocation [...]

{ 1 comment }

In two books I’ve read recently (The Investor’s Manifesto by William Bernstein and The Little Book of Main Street Money by Jonathan Clements), the authors make the case that young investors should have a conservative asset allocation until they’ve been through a bear market.
The argument is that most people tend to overestimate their tolerance for [...]

{ 5 comments }

I recently came across an interesting question on the Boglehead forum:
If you could only own one fund, what would you own?
That question got me thinking about one aspect of investing that doesn’t often get discussed: desire for simplicity. While some investors don’t mind managing a portfolio of ten different funds, other investors would never consider [...]

{ 13 comments }

What percentage of the stock portion of your portfolio should be invested internationally? Vanguard’s website (in a section only accessible if you’re logged in) contains this statement:
“Investing up to 20% of your stock portfolio in international stocks can help you diversify. Between 20% and 40%, your diversification improves, but at a lower rate. And because [...]

{ 10 comments }

One of my favorite blogs, Bad Money Advice, recently linked to an older article of his that I hadn’t read. In the article, Frank challenges the assumption that “as you get older you should take fewer risks in your investment portfolio.”
This stopped me in my tracks given that:

I do generally think that investors should take [...]

{ 17 comments }

There’s an excellent discussion in The Bogleheads’ Guide to Retirement Planning about rebalancing. One of the topics discussed is whether it’s better to:

Rebalance based on a specific frequency (annually, for instance) or
Rebalance based on specific tolerance bands–for example, rebalancing if the allocation to a given asset class becomes 10% higher or lower than intended.

Rebalancing Periodically
The [...]

{ 12 comments }

While you’re still in your early working years, asset allocation is (relatively) easy. For the most part, it’s OK to have as much in stocks as you’re comfortable having. If you’re not bothered by the volatility that comes from a 90% stock portfolio, then having a 90% stock portfolio is probably just fine.
In retirement, things [...]

{ 8 comments }