Picking an Asset Allocation Model

Yesterday's post discussed Step One - Pick an Asset Allocation Model. Many brokers have similar models to choose from. Here are 2 of the 6 models offered by Schwab:

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(Source: Schwab)

Again, the main point is to look at the broad allocation between stocks and bonds. If you are in a position to take on risk because you have the capability, capacity, and need then, other things equal, you would choose a higher stock allocation. As is typical, Schwab has an online questionnaire to help select the appropriate model. There are also many tools online to kelp in this endeavor.

Note that Schwab has 6 asset classes and their targeted percentages.

Keep in mind that the objective is to choose a model that you can pretty much stick to over an up or down cycle. Don't just look at the best year's performance--look hard also at the worst year return. It is highly likely that you will experience such a return sometime within the next 10 years.

Picking the appropriate model is a big step in the DIY investing process. Tomorrow, we go to Step 2 for the DIY investor: selecting specific investments to fit the model.