Investment Help

If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.

Sunday, April 18, 2010

DIY Newbie - Step 1 (cont.) - asset allocation

To finish up with the asset allocation tool, let's take a specific example. We'll use these results in later posts. You may want to do this for your specific situation. The end result will help us set up an actual portfolio.

The assumptions we use for our specific example are as follows:
Age: 35
Current Assets: $100,000
Savings/year: $10,000
Marginal tax rate: 25%
Income required: 0%
Risk tolerance: middle
Economic outlook: middle

With these assumptions, we get 28% large cap, 19% mid cap, 14% small cap, 15% foreign stk. This represents the stock allocation. In total it is 76% stock.

On the fixed income side, we get 10% bonds, 0% municipals, 14% cash. In total then, the tool suggests 24% in fixed income.

A couple of comments are in order. As Grouch noted in an earlier post, there are "rules-of thumb" that are often used. He specifically mentioned Bogle's view that bond percent should equal age. Another more aggressive one is 120 - age equals stock position. One I recently came across is that stocks should be twice the loss that would make you uncomfortable. For example, if a 25% drop in your portfolio would get you to move aggressively to a defensive posture, you should have no more than 50% in stocks.

The bottom line is that asset allocation isn't as scientific as it can be made to appear. Go to 3 different financial advisors and you'll come away with 3 different allocations. The point is know yourself and constantly monitor your allocation. As many observers have noted, we all learned a lot about our risk tolerance in 2008.

In the next post, we'll take a look at a risk tolerance questionnaire just to get a flavor for the type of questions typically asked and to pick out the important ones.


  1. Asset allocation seems to be one of the most neglected topics on the financial blogs, but one of the most important issues for the investor. I could care less about reading another article on how to get a credit card. But rarely see anything in depth coverage of allocation strategies.

  2. You're right. Unfortunately many see it in a human resources meeting where plan reps making a jargon filled presentation on the company 401(k) that confuses most people. And then people are surprised at the low participation rate for these plans and don't understand why the country saves so little.