Author Topic: Basic asset alocation question  (Read 851 times)

pigpen

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Basic asset alocation question
« on: December 29, 2019, 08:39:55 AM »
So, we're at 70/30 stocks/bonds, which works for us, but I'm currently looking at the finer details of our investment plan and any possible year-end rebalancing and want to make sure I understand a basic principle -- or at least the way people talk about a basic principle.

My question: (using a hypothetical $1,000,000 total portfolio for easy math). When someone recommends, say, that you should be "30% in international stocks," do you read that as a recommendation to put $300,000 into international stocks (30% of the grand total of $1M), or as a recommendation to put $210,000 into international stocks (30% of the total equity allocation of $700,000?

Thanks.

PP


terran

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Re: Basic asset alocation question
« Reply #1 on: December 29, 2019, 09:20:14 AM »
No, 30% international stock would generally mean 30% of the total stock allocation. So in your case with a 70/30 stock/bond and a 70/30 US/international stock allocation:
  • 30% x $1M = $300k bonds
  • 70% x 70% x $1M = $490k US stock
  • 70% x 30% x $1M = $210k international stock


pigpen

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Re: Basic asset alocation question
« Reply #2 on: December 30, 2019, 06:23:50 AM »
Thanks!

seattlecyclone

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Re: Basic asset alocation question
« Reply #3 on: December 30, 2019, 09:44:32 AM »
I don't know, I think that recommendation could easily be interpreted either way. You'd have to ask the person recommending it to clarify.

MustacheAndaHalf

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Re: Basic asset alocation question
« Reply #4 on: December 31, 2019, 05:32:45 AM »
put $210,000 into international stocks (30% of the total equity allocation of $700,000?

It means a percentage of equities.  Within your equity allocation, you are trying to diversify.  So you allocate to domestic, and some percentage to international.  It's a separate split than stocks vs bonds.