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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 |