Model Portfolio #3: All About Asset Allocation

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(This is the third in my series of Model Portfolio Comparisons.)

All About Asset Allocation (my review) is written by Richard Ferri, CFA, who is also the president of his own investment advisory service. If you are interested in learning more about how each asset class interacts with one another, I definitely recommend this book. Here are two model portfolios for younger investor, one simple and one more complex.

“Early Saver” Model Portfolio – Basic

Asset Allocation Pie Chart, Basic

Asset Allocation for 70% Stocks/30% Bonds ratio
40% Total US Stock Market
20% Total International Stock Market
10% REIT
30% Intermediate-Term Bonds

“Early Saver” Model Portfolio – Slice-and-Dice

Asset Allocation Pie Chart, Slice

Asset Allocation for 70% Stocks/30% Bonds ratio
25% Total US
10% US Small Value
5% US Micro Cap
10% REIT
5% Pacific Market
5% European Market
5% International Small Cap
5% Emerging Markets
10% Intermediate-Term Bonds
10% High Yield Bonds
5% US Inflation-Protected Securities, or TIPs
5% Emerging Market Bonds

There are other model portfolios for mid-life, early retirement, and late retirement which I have left out. I like that these portfolios give you lots of options and it lets people find their own mix, perhaps somewhere in between.

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  1. After reading a couple of books, Ferri’s book was recommended to me. The chapters about the various asset classes are great and I have yet to find any other book that compares. I’ve modeled my portfolio in large part based of the information in his book with a slight increase in energy exposure as a hedge against the possibility of Peak Oil.

    My current portfolio is

    Equity 80%
    Large cap index 20%
    Large cap value 10%
    Small/Mid cap index 10%
    Small cap value/ETF 5%
    REIT 12%
    Energy 3%
    Europe ETF 6%
    Japan ETF 3%
    Pacific Rim except Japan ETF 3%
    Emerging markets ETF 6%
    Canada ETF 2%

    Bonds 20%
    Intermediate term municipal 12%
    Inflation protected 3%
    High Yield Coporate 3%
    Emerging markets 2%

    I will probably be increasing my bond portion over the next 5 to 10 years to 25% or 30% but otherwise intend to keep the same percentages with rebalancing.

  2. Though I believe in allocation & early investments, I think you have to manage your money as if you’ll need it much sooner than retirement. Reason? Many people lost over 50% ,of what their have made in years, in 2001 alone.

  3. HDoc – Looks good 🙂 You must have a good chunk of money to be splitting it so fine. May I ask what Emerging Market Bonds and Muni Bond Fund do you use?

    roman – Well, if they kept in the market they would have also made a lot of it back. Not to mention a lot of the 2001 money would have been after a great run. Finally, if they were really in retirement they should have had a good % in bonds. But it’s true that people seem to be forgetting that crash already.

  4. This all seems very confusing to me, I bought Rick Ferri’s book on Asset Allocation… Last couple years I have kept it really simple but want to slice and dice possibly, but I am afraid I will not be able to keep up with all the re-balancing. Currently I have…

    Vanguard Total Stock Market- 40%
    Vanguard International 30%
    Vanguard Small Index Fund 10%
    Money Market/CDs – 20%

    I guess I’ll keep reading until I can figure what’s worth it or not.

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