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Update of "AssetAllocations"
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Overview

Artifact ID: 75ec59ceeeaa2269230d2ca311736e643082c5592bf141fd414321249fdf03ec
Page Name:AssetAllocations
Date: 2021-05-21 20:23:47
Original User: zie
Mimetype:text/x-markdown
Parent: daa379d029c25cfac2ce0e66a7497abd9d6fd6fcdb499d246a817d8f18c5a051 (diff)
Next fe0cd821de6e05b25dc14d41935a78f49c4fc4c36349a8777fe270e7dd9dfa8a
Content

After reading AssetClasses we can then start to think about Asset Allocations, i.e. of these AssetClasses what should we own, how much, and should we change our allocation over time?

The easiest answer, if you don't want to think about this stuff is a "Target Date/Retirement Index Fund". Fidelity and others offer them, and they are the easiest sane answer, just pick the farthest date out that you might retire and buy that fund(It's totally fine to retire before the date on the fund). If you don't want to know anything else about investing, you can safely ignore the rest of this page.

Your people probably talk about some common portfolios/Asset Allocations, let's talk about some of the more common ones:

Five Factor / Factor investing.

This method of investing is guaranteed to be a very bumpy, emotional ride, you absolutely must prepare to lose to the market for many decades. The academic theory is you will eventually be rewarded. It's still not rigorously proven.

This economic science is new, and there were originally 3 factors in 1992, but they were proven to not fully explain the markets and they created the 5 factor model. Since then, there has been an academic free-for-all trying to invent a bajillion more "factors" that can beat the market, I would bet 99% of them are bogus and so far academics are proving them to be mostly non-existent. So far the 5 factor model is the best academic-based answer we have on how to make money in the stock market, but it's not rigorously proven yet. Implementing the 5 factor model for a DIY investor isn't the easiest, these days you can go through a financial advisor that has access to the DFA funds or use something like the Avantis funds. Paul Merriman is a fan and following his advice is a decent way to not get to off-track.

All Weather Portfolio / Turtle Investing.

Ray Dalio is famous for this method of investing, the idea is you own things that do well for any given economic condition, so you always have something doing well, so no matter what happens, you should be OK.

Often not talked about, but because you in theory own something that will always do well, you also will own things that will do poorly, which means some of your assets will ALWAYS underperform or lose money, it is by design. Since it is hard to know what will work out well in the next decades, we own everything and accept the lumps when they happen.

I call this Turtle Investing and has a lot to do with Start Date Sensitivity. This method of investing says, I don't want 30% returns on occasion if it means I have to eat 50% cuts on occasion, I'd rather just plod along like a turtle with strong stable growth overall. Economic academic literature doesn't spend much if any time researching this that I'm aware of.

If this idea appeals to you:

My personally created "Turtle Portfolio", modelled after the Pinwheel Portfolio

ETF:

15% VTI (Total Stock Market)
15% VXUS (International Stocks)
--- Alternatively just hold 30% of VT, if you don't want to hold them separately
10% IJS (Small Cap Value)
10% VWO (Emerging Markets)
15% BND (Intermediate Bonds)
5% VNQ (Real Estate-REIT)
10% VPU (Utilities)
10% SGOL (Gold) IAU is the common choice, but SGOL is cheaper(.17ER vs .22).
10% cash (hold in your checking/savings/MMF)

Fidelity Version:

15% FZROX/FSKAX (Total Stock Market)
15% FZILX/FTIHX (International Stocks)
10% IJS (Small Cap Value)
10% FPADX (Emerging Markets)
15% FXNAX (Intermediate Bonds)
5% FSRNX (Real Estate-REIT)
10% VPU (Utilities)
10% SGOL (Gold) IAU is the common choice, but SGOL is cheaper(.17ER vs .22).
10% cash (hold in your checking/savings/MMF)

While accumulation phase, re-balance with new $$'s.

60/40 AA "bogleheads" portfolio

This is the "classic" 2 or 3 fund total market and bond holding fund. The idea here is you own the Total Market(though people disagree if "total" means US only or not, hence the 2/3 fund debate) and some bonds. With bond prices guaranteed to be terrible for the 2020's, owning bonds right now isn't the smartest choice, but it's definitely safe enough. See the bogleheads wiki page about it.

For the 2020's while accumulating, I'm more of a 100/0 bogleheads portfolio type, I.e. skip the bonds, and just own the total stock market, until we know what interest rates(and there for bonds) are going to do. If you already own bonds, there is probably little reason to sell them.

Conclusion

It's important to note that none of these portfolios will get you rich tomorrow, at best, they will increase your wealth 20-50 years from now. I.e. these are all long-term buy and hold strategies. If you want to get rich tomorrow, you MUST concentrate your investing AND you must be correct in your investment. The absolute best way to do this is to invest in yourself. I.e. Education, schooling, exercise and health, better paying jobs, etc. If you are finished investing in yourself for now and want to make a concentrated investment, then follow the old adage: put all your eggs in one basket and WATCH THAT BASKET.