Author Topic: Asset Allocation Analyzer tool (for portfolio building)  (Read 1349 times)

fund4tomorrow

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Asset Allocation Analyzer tool (for portfolio building)
« on: December 16, 2019, 01:51:41 PM »
Hi,

I'm trying to help my sister-in-law slowly break into mutual funds for after tax savings in addition to her yearly Roth contributions.  She unfortunately does not have a 401k at her city job (but fortunately a pension).  I'd like to put her in the Fidelity Zero funds (even though I'm currently using Vanguard and am happy with them).  I like Fidelity for her because they have no minimums for starting investing and also the expense ratios are great. 

For equities, I'm thinking of putting her into two funds (and possibly FidelityŽ Interm Trs Bd Index FUAMX for Bonds with 0.03% expenses)

Fidelity ZERO Total Market Index FZROX
Fidelity ZERO Extended Market Index FZIPX

Is there a tool I can use to analyze the portfolio to understand the total Asset Allocation of the equities to see how much of it is going to Large Caps, Mid and Smalls so that I can adjust accordingly? 

If anyone has done this before, I'd appreciate your advice.

Thanks all!


MustacheAndaHalf

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Re: Asset Allocation Analyzer tool (for portfolio building)
« Reply #1 on: December 17, 2019, 05:25:21 AM »
I think it's a mistake to include U.S. small caps ("extended market") before international equities. If you look at the past 10 years of correlation data from portfolio visualizer, you'll see:
VTI (total stock) is 0.95 correlated with VB (small cap), but only 0.85 correlated with VEU (international).

I'd suggest allocating 1/5th of your relative's equity allocation to FZILX - it's better diversification than U.S. small caps.
The first 20% is the most likely to provide diversification.  Since she's not familiar with investing, higher percentages are probably not something she'd be comfortable with, and the diversification benefit in the 20-40% range requires more patience / experience.  It's less certain.

Another sanity check for all this is to look at what "target date" funds are doing.  In general, when someone is far from retirement, those target date funds tend to have about 10% bonds.  So to put that all together:

10% bonds
72% U.S. total stock market
18% international stock market
 (1/5th of the equities: 90% x 1/5 = 18%)

Brianmcg321

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Re: Asset Allocation Analyzer tool (for portfolio building)
« Reply #2 on: December 19, 2019, 06:13:38 AM »
There's a lot of overlap with your choices. The total market funds holds all the securities that are in the extended market.

The total market fund is enough and will be very tax efficient.


fund4tomorrow

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Re: Asset Allocation Analyzer tool (for portfolio building)
« Reply #4 on: December 21, 2019, 01:10:11 PM »
Thanks for all the tips.  I appreciate the advice on the asset allocation models plus the Morningstar Xray tool.  I was able to use that to find the balance we were looking for. 

We decided on the following asset allocation for my sister-in-law's contributions as she is pretty risk adverse with 70% equities and 30 bonds.  I ended up adding some international and cutting down on the extended market.  I still prefer to have a little of that in there. 

57%: Fidelity ZERO Total Market Index FZROX
30%: Fidelity Total Bond Fund FTBFX
10%: Fidelity ZERO International Index FZILX
3%: Fidelity ZERO Extended Market Index FZIPX



Telecaster

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Re: Asset Allocation Analyzer tool (for portfolio building)
« Reply #5 on: December 21, 2019, 01:32:09 PM »
There's a lot of overlap with your choices. The total market funds holds all the securities that are in the extended market.

That's true...but both funds are cap weighted.  The total market fund, dollar-wise, is mostly large cap stocks.  The mid caps and especially small caps are barely represented.

If you think that a more balanced portfolio (balanced by cap weight) is important, then there is a case to be made for having both funds.

Portfolio construction is rabbit hole that you can go down as far as you want.   And you won't know if your portfolio was optimized until years in the future.  So I don't want to say anybody should do something like that.  Just that there is a rational reason for doing so.