Author Topic: How long did it take you to decide on your current asset allocation?  (Read 4441 times)


  • Stubble
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So I'm pretty new to the world of investing.  I've been reading the blog/this forum for almost a year and I've been out of college for a year.  I've recently gotten over the 1/2 way hump in paying off my loans but I still have some months to go.

I've also invested a whole $130.32 in my 401k in Vanguard's institutional s&p 500 fund, which has grown to $144.90.  Exciting!

My company match will start this September and I've started thinking about which way I want to go with asset allocation when I start contributing to it.  On one hand, I want keep it simple and just stick everything in one index fund while I'm accumulating and learning.  On the other hand, I can't help but think about all the ways I can diversify.  My 401k also has vanguard institutional shares for mid cap and small cap, and admiral shares for REITs.  It's great that these funds are available to me, but it would make things a little easier if the total stock market fund was also available.

Some of the things I've been thinking about include..
-If I use the 3 index funds to mimic the stock market, instead of just putting it all in one place, will I feel more of an itch to tinker and rebalance between funds?
-Will I feel like I'm "missing out" if I just stick to the SP500?
-What if I go 40/30/30 on Large/Mid/Small?  Why should I pick that over some other combo of 3 numbers?  Since I'm still young and I don't have much to lose, the potential volatility of that route might be worth the return.  At the same time, being too unconventional this early might cause me to doubt myself when the market goes south.  I don't think I'll know my true appetite for risk until I experience a crash.

How long did it take you to become comfortable with a target allocation enough to stick with it, and what got you to that point?
« Last Edit: May 18, 2014, 11:21:43 PM by xenon5 »


  • Bristles
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I think about 1/2 to 3/4 Year. It took alot of research and reading because im really an investment novice. Despite i already have been in the markets for some years now, it was only until recently that i have put up a hard strategy that i follow.

As far as i know, the overall portfolioreturn depends mainly on the allocation of asset classes and not so much in allocation inside those classes (eg. stock/bond allocation mathers more than the US-stock/International allocation).
Im now with an rougly GDP adjustet worldwide diversified portfolio over several asset classes. This will not produce outperformance but should be weatherproff against most major crisis (in terms that the overall volatility should not swing as much plus im able to rebalance).
Most important to mee seems that your allocation matches your gut, that is you can bear the volatitlity you can expect from you choosen allocation. I like more "safety" in my portfolio so i diversify also into industrial commodities and REITs.
One core question to this is your question "will i feel i miss out?". No one can answer this question as it only can be answered in retrospect. What i can do however is, design my portfolio as such, that i can take advantage of uncorrelated asset swings, an i do this via broad diversification of asset classes.

The main point is to adress all your doubts with a option, so you can act if the situation realizes itself.

Example: If US Stock raises more as the EU stock market, i will take advantage of it: firstly my allocation in US stock will raise compared to the rest of the portfolio. I will rebalance to EU stock wich might(!) turn out better in the future.

For me it sounds you still need alot of reading to get a better feeling on what is "normal" in the markets and develop a sense for it.


  • Handlebar Stache
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I'm very much of the "set it and forget it" mindset.  The more you follow the day to day on your investments the more likely you are to tinker, usually to your investments' detriment.

As to asset allocation, there are as many strategies and investors.  Your age is listed as 22, so I would be very heavy in stocks only a little bit (none) in bonds.  Take that risk now!


  • Walrus Stache
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Perhaps you want to investigate the Vanguard retirement funds or life strategy funds on there website till you learn more and figure out what you want to do. But read everything you can get your hands on for awhile.


  • Handlebar Stache
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I think a "fire and forget" fund is ideal for a 401k where you are just starting out.  You will want to avoid the temptation to fiddle with things too much and you are also hopefully at a stage where life happens and you want to be able to walk away for extended periods of time and not have to mess with your retirement portfolio.  Pick an all-in-one fund and ignore it for a year.

I would do some navel gazing about what your risk tolerance really is.  This is not that easy to suss out and the consequences of getting it wrong are unpleasant.  You may think that placing it all on "red" (all equities) is a great idea, but do a little digging on the risk-return trade-offs of various bond/equity splits.  You really give up little performance with bonds as high as 30% while materially tamping down volatility.

Mississippi Mudstache

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I got serious about my retirement investing about 2 years ago. Only recently have I settled on an AA that I feel like I'm going to stick with. I started off reading Jack Bogle, and invested in a total market US index fund (100% stocks). Then I got a wild hair after reading Warren Buffett and Benjamin Graham, and decided to try my hand at stock picking. After a few months, I realized that I was wasting my time on research and my money on transaction fees. So I went back to a 100% stock index portfolio, but this time with international exposure. Finally, the wise folks around here convinced me of the utility fixed income, even in this low-yield environment, so I added 10% to bonds. My current AA stands at 65% U.S. equity, 25% international equity, and 10% bonds. I plan to keep it there until I decide it's time to up my bond allocation.


  • Handlebar Stache
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After reading a few articles, I literally spent about 10 minutes choosing my asset allocation when I was your age, and haven't changed my strategy since.

I basically followed the conventional wisdom at the time, which was similar to "100% minus your age in bonds," and readjusted every 10 years or so. I'm now 47, and have only changed my allocation a couple of times. I started at 90/10 in stocks/bonds at age 23, then went to 80/20 at around age 30, then 70/30 around age 40, and I'm now at about 65/35 at age 47 (retired). This doesn't count real estate, which is another investment with some added diversity.

I've been happy with this approach. It has brought me a good return over the years, more aggressive at younger ages when you can weather some ups and downs, and lets me sleep at night knowing I've had some protection from wild stock market swings as I got older.


  • Magnum Stache
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How long did it take you to become comfortable with a target allocation enough to stick with it, and what got you to that point?
Asset allocation is a journey, not a destination. 

Your tolerance for volatility could very well drop as you approach FI, and you'll certainly become more loss-averse as you age.  New financial products come out every day, investment firms tinker with their expense ratios, companies change their 401(k) offerings, and your investing knowledge will improve.

We backed into our AA over a decade, and we were able to flame-test it during two recessions.  The key is not just "sleep at night" comfort, but minimal effort.  You should be able to choose it, put it in autopilot (payroll deductions, automated clearing house transfers), and only have to reassess your choices every year or two.  It's even better if you don't have to rebalance more than a few times a decade.  In general the less active you are, the better you'll do.  But don't lock yourself into an AA and vow to hold until you die.

Even so, I'm occasionally attracted to the approach (and extremely low expenses) of  But then after I read one of his analyses I realize (yet again) that he's largely hard-wired to enjoy the process, and when it'd done right it's a lot of work.  He certainly seems to have it down to a minimum cyclic routine, but a passive AA returns at least 70% of his approach with about 5% of his effort.


  • 5 O'Clock Shadow
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OP, since you're just beginning you won't be missing out on much by starting with one fund, such as V 500. I started out similarly, with just one fund in largecap and one fund in bonds. I read some books to learn more about the reasoning behind diversification and asset allocation.

Eventually, I moved toward a "roll my own" format using V500, mid-cap, and small-cap index funds. I suppose I could have just plunked it all into a total US but that didn't exist at the time, and now I don't mind just having 3 funds and keeping it roughly proportional to market capitalization.

Bogleheads wiki has a page about approximating the US total market. What they did there is choose various percentages, and then use Morningstar's 9 boxes of the result to compare it to US total  market.

At the time that page was written, something like 81% V500, 6% midcap, 13% smallcap was a reasonable simulation. Also, 83% V500 and 17% smallcap was another. You could probably go to Morningstar and use the Instant X-Ray feature to build a fake portfolio with those percentages and compare it to US total market in terms of that 9-box model.

Note that a 33/33/33 proportion would actually weight things far towards midcap and smallcap than the US total market is. That's because the size of largecap companies dwarfs the sizes of midcap and smallcap as a part of the economy.

As I got older, I added things to further diversify ... first a little Euro, then Pacific, then Emerging. But honestly nowadays the task of AA is made much easier by the "total" funds that are now around, and the Target funds that change AA for people. Those are for people who are "hands-off." I think the number of funds you use and how often you rebalance is a decision you'll come to.

I don't believe lots of tinkering is necessary, because one's "risk tolerance" is probably not a fixed number but a range, so an AA has quite a bit of leeway before it gets so far awry that you need to rebalance.


  • Bristles
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Took me about 20 minutes. When in doubt, just split the difference.


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