Asset allocation

[spotty_dog]

So. Most of us have some money squirrelled away for the distant future, I hope. Some more, some less. My question for everyone here is: what's your asset allocation for your retirement funds? How does it compare with your ideal asset allocation?

I know that can be a more complicated question than it seems on first glance! But answering it can really give you some great experience thinking about your investment choices. The absolute crux and core of every portfolio, whether large or small; the single factor that most affects the risk you are undertaking and the return you are expecting, is the way your funds are distributed among different asset classes.

So, if you're not sure, it might be a worthwhile exercise to find out! Dig up your online logins or your account statements, look at each investment, and start by classifying it as equity vs. debt or fixed income (stock vs. bond). Real estate is equity. Cash is fixed. CDs are debt. Some mutual funds are a mix.

Then further separate into whichever other asset classes you can identify. Equity can be split into domestic vs. foreign, for example.

And see what you come up with!

My asset allocation is a little complicated, because my portfolio is growing a little large. Now that even just a few percent of the portfolio is enough to reach minimum investments for certain funds, I can get all nit-picky and detailed. But those details are really very minute fine-tuning. If all you ever allocate is domestic stock, foreign stock, and bonds, then you are in great shape because that will be the majority of what determines your returns!

I have been through the 2008-09 market crisis, albeit fairly ignorantly, but looking at what my accounts did in hindsight, I know I don't want to watch quite that much fluctuation in the future. So I'm moderately conservative. But with a 20-ish year retirement horizon, we need to take what risk we can stand. So I have chosen what I feel is a fairly average level of risk.

Allocation: 70% equity/30% fixed. Of the equity portion, 70% is domestic stock, 20% is foreign stock, 5% is real estate, and 5% is small cap stocks (sort of a tilt, sort of an attempt to balance our holdings of large-cap common stocks.) Of the foreign stock, 75% is developed markets and 25% is emerging markets. So the smallest pieces of my allocation pie come down to about 3.5% of the total.

Our taxable investment account is about 40% the size of our retirement-specific accounts, but all of it is earmarked for "long-term" investing so it all goes into the same pot to be distributed.

How 'bout you?

[metroguy]

i'm in charge of the finance--and i don't even know. it gets complicated when i factor in real estate, pension, 401k and potential inheritance. my rough guess is 75% real estate (net equity), 15% market timing account(all cash currently) and 10% cash(inertia is hard to overcome). i'm shock at the bogleheads that can calculate exact % points and cash flows. my goal is relatively simple--replace 100% after tax income of my job. once i achieve that--then it's just a matter of finding to fill my time (in which case, it'll probably be something like my current job).

[spotty_dog]

i'm in charge of the finance--and i don't even know. it gets complicated when i factor in real estate, pension, 401k and potential inheritance. my rough guess is 75% real estate (net equity), 15% market timing account(all cash currently) and 10% cash(inertia is hard to overcome). i'm shock at the bogleheads that can calculate exact % points and cash flows. my goal is relatively simple--replace 100% after tax income of my job. once i achieve that--then it's just a matter of finding to fill my time (in which case, it'll probably be something like my current job).

Potential inheritance doesn't really count, does it? My friend, you have a brass pair if 75 physical real estate/25 cash is the complete extent of your family's long-term plans for financial security! I know a lot of people feel best about the cash flow of investment property though, and I hope it works out well for you.

Going forward after your wife finishes training , do you plan to hold any 401(k) or other investment accounts? And have you worked out how your ROI compares to more typical stock equity investments?

[ides]

This all just makes me dizzy. I don't trust the stock market as far as I can fart so that leaves me lost on where to invest when we have money to invest.

[spotty_dog]

This all just makes me dizzy. I don't trust the stock market as far as I can fart so that leaves me lost on where to invest when we have money to invest.

My philosophy is that investing in the market -- the whole, broad market -- is betting on the economy to continue, you know, existing. As long as it does, as long as there are companies making stuff and people buying stuff, then even when it slumps or putters instead of roaring, I will see a little portion of the profits via dividend, as well as hopefully seeing some increasing value in the actual little bits of company I own, and overall in the long run, I should see returns better than inflation and thus it's actually a safer investment than keeping my money in a mattress (or CD). If there's a long slump in values, that's why I also own some of the debt that companies borrow and pay interest on. And if the whole worldwide economy crashes completely (which I not only don't rule out, but actively expect to have happen in the next 20 years?) I figure that I will have a lot more to worry about than where my extra cash is invested! Like, where my next meal will come from and whether roving packs of marauders will be trying to take my family's food and stuff!

[metroguy]

Potential inheritance doesn't really count, does it? My friend, you have a brass pair if 75 physical real estate/25 cash is the complete extent of your family's long-term plans for financial security! I know a lot of people feel best about the cash flow of investment property though, and I hope it works out well for you.

Going forward after your wife finishes training , do you plan to hold any 401(k) or other investment accounts? And have you worked out how your ROI compares to more typical stock equity investments?

i'm not sure what you mean by brass pair. do i project i'll be able to retire--yes, assuming i work for another 10 yrs AND i can management tenants which i never like. the rental income generate a 1% net return after expenses (mtg,taxes,etc). rental income is project to grow with inflation--so i'll have 5 to 6% real return once mtg is payoff. that should be enough to live until i can get access to 401k, social security and a small pension.
my stock roi is around -3 to -5% per yr over 10 yr period. i would have break even sometime this yr but the wife force me to sell my holdings to buy real estate.
as for life after residency--i'm not sure if makes a big difference in terms of finances. sure there be more income. wife will finally have a 401k--but otherwise no much difference. chances are high we'll buy house closer to her work--whatever that maybe. that's the reason why we're 25% cash--because we'll use that for down payment on a house.
i guess i should worry about college since i got 2 little ones--but again. worse come to worse--my kids can go to state school. of course i can work for an extra 6 yrs to pay the kid's education. and if that doesn't happen, we'll see if we can speed up the inheritance and use that to pay for the kid's education.

[spotty_dog]

i'm not sure what you mean by brass pair. do i project i'll be able to retire--yes, assuming i work for another 10 yrs AND i can management tenants which i never like. the rental income generate a 1% net return after expenses (mtg,taxes,etc). rental income is project to grow with inflation--so i'll have 5 to 6% real return once mtg is payoff. that should be enough to live until i can get access to 401k, social security and a small pension.
my stock roi is around -3 to -5% per yr over 10 yr period. i would have break even sometime this yr but the wife force me to sell my holdings to buy real estate.
as for life after residency--i'm not sure if makes a big difference in terms of finances. sure there be more income. wife will finally have a 401k--but otherwise no much difference. chances are high we'll buy house closer to her work--whatever that maybe. that's the reason why we're 25% cash--because we'll use that for down payment on a house.
i guess i should worry about college since i got 2 little ones--but again. worse come to worse--my kids can go to state school. of course i can work for an extra 6 yrs to pay the kid's education. and if that doesn't happen, we'll see if we can speed up the inheritance and use that to pay for the kid's education.

LOL. Allow me to remind your wealthy relatives not to get on your bad side!

I just mean that if your entire long-term savings plan is 75% investment property, just five years after the real estate market has slowly clawed its way back from the brink (I mean, that's the root of your negative returns, after all!), you must be brave or confident. Earning 1% in a time when the total domestic stock market has made closer to 20% in the past year, sounds like you're really a lot more confident in marketing/managing property than in equity investment; I'd call that the opposite of myself, so it looks extra brave to me since it's relatively unknown.

But if your cash on hand is earmarked for a down payment in a couple of years, that's hardly a long-term savings goal. And if you have a 401(k) and pension, then the 75/25 is hardly your whole long-term savings nest egg. So I think we might be talking at cross purposes?

How is your 401(k) invested and when your wife starts saving with one, how will she invest her 401(k)? Does she put anything aside in an IRA now?

[metroguy]

i would follow the bogleheads philosophy of index funds--IF i can convince my wife and me that markets always goes up in the long run. the market goes up and down. real estate goes up and down too. rent on the hand has not go down too much. it's relatively consistent -except for bad tenants. so which ever poison you pick, there always some downside. i know bogleheads don't like real estate. they prefer passive index/rebalance investments. it works for most of them since they're essentially passive investors. real estate is active investing.
as for my 401k, it's in cash/money markets that yields .01 or some really small amount. i think i get $1 month. i tend to market time 401k money--so for the past 2 yrs, it made like 2 or 3%--about the same as inflation. i know it's less the market. however i did beat the market during the 08-09 downturn. i was up about 20% when the market was down 20%.
anyway, i don't recommend people follow my ideas. my ideas work for me--for several reasons. 1. i been working and savings for long time. 2. i got relatives who can fix real estate stuff. 3. i got a nice potential inheritance. 4. i'm cheap--i save about 30 to 40% of my after tax income.