« 60% of NBA Players Go Broke Within 5 Years of Retirement? | Main | This is Pure Genius »
Investing For the Long Term - What’s a Good Portfolio Allocation?
By JLP | April 9, 2008
I received this email from a reader:
I was wondering if you could do a post on what you think would be a good long term stock portfolio allocation. I saw an earlier post of yours on Kiplinger’s 2008 recommended allocation and tweaked it a little to create the allocation below. Like Kiplinger’s allocation, I stuck to only equities, intend this to be a long term portfolio (i.e., no withdrawals for at least 15yrs+) and stuck with only Vanguard funds because they’re generally the cheapest. Obviously, an emergency cash cushion would be maintained, I just didn’t include that in this allocation. I also didn’t include a bond position even though I’d keep a small bond allocation. I really wanted to just concentrate on a good mix of equities only.
I’d appreciate any thoughts you or your readers might have on a good equity allocation.
Regards,
JBProposed long term portfolio:
30% - Large-Cap Domestic / Vanguard 500 Index (VFINX)
10% - Small-Cap Domestic / Vanguard Small-Cap (NAESX)
10% - Mid-Cap Domestic / Vanguard Mid-Cap Index Fund (VIMSX)
20% - Large-Cap Int’l / Vanguard Total Int’l Stock Fund (VGTSX)
20% - Int’l Emerging Markets / Vanguard Emerging Market Stock Fund (VEIEX)
10% - Real Estate Investment Trust / Vanguard REIT (VGSIX)
JB,
Based on the information you gave me, I see nothing wrong with that allocation. If this is a lump sum you are investing, don’t forget about the possibility of using exchange-traded funds. Vanguard has ETFs for each of those asset classes (for more information, click here).
The main thing I would suggest is that you make sure you stick with your allocation by rebalancing every year or so—depending on how far your portfolio deviates from your chosen allocation plan.
Finally, if you are interested, you might want to check out my post, Building a Portfolio for Retirement, that I did a few weeks ago. This is a diversfied portfolio that invests equal amounts in seven different asset classes. The portfolio was based on the work of BYU professor, Craig Israelsen.
Topics: Asset Allocation, Index Funds, Investing |
April 9th, 2008 at 9:43 pm
Check out Vanguards LifeStrategy Funds. It’s one fund choice and the allocation into other Vanguard Funds is done automatically depending of which strategy you choose. There are 4 funds.
April 9th, 2008 at 11:18 pm
I’m sort of a fan of the Margaritaville portfolio myself, when looking for simple, using ETFs of course. I use this for my IRA, which I only contribute to once a year (to tune my taxes). My 403(b) is in a lifecycle fund.
Thank you for playing up rebalancing. There’s a pretty good argument that rebalancing is way more important than the actual allocation percentages. You can probably choose just about anything reasonable as long as you rebalance faithfully.
April 10th, 2008 at 2:35 pm
This looks pretty much like my allocation, except I have a bond fund instead of the REIT. Mine is also at Vanguard with the exact same funds (except the REIT). I have a bit more in domestic stock and a bit less in international, but that’s as much personal preference as anything.
I think Vanguard is a very good choice. I’m not an expert, but I think low fees and rebalancing are more important than your exact allocation.
April 18th, 2008 at 10:10 pm
A reasonable allocation. I would suggest a bond fund to add a little more diversification and balance to the portfolio.
May 20th, 2008 at 1:18 am
JB,
I like your portfolio. You may want to consider including these 3 asset classes:
Foreign Developed Equity
Treasury Bond
Treasury Inflation Protected securities
David F. Swensen manages Yale University’s endowment and in his book “Unconventional Success” recommends these asset classes along with others that are already in your portfolio.
I find Swensen’s advice credible because Yale’s Endowment has fared well under his stewardship and he backs up his advice with academic research.
He also counsels on asset classes to avoid (you don’t have any in your portfolio).
Google Swensen to read a couple Wall Street Journal & New York Times articles about him. The reader reviews at Amazon.com also give a good idea of what the book is about.
MMI
August 5th, 2008 at 10:37 am
I am 24 years old I was wondering what the best thing to do with a few thousand dollars. Should I buy stock since its so low right now or should I look into a Roth IRA? I already have a mutual growth fund so I would like to steer away from that.