Author Topic: Website calculations for diversification  (Read 2387 times)

Spondulix

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Website calculations for diversification
« on: January 21, 2015, 02:53:34 PM »
I was just looking at Personal Capital's investment analysis of what my diversification should be. I'm pretty close to what it suggests as target, but I'm about 10% low in international and alternatives.

How much do you trust these? I feel good about my position - Im mostly invested in index funds (US stock index, US bond index, some international). I'm pretty close on the efficient frontier, too.
« Last Edit: January 21, 2015, 02:57:34 PM by Spondulix »

seattlecyclone

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Re: Website calculations for diversification
« Reply #1 on: January 21, 2015, 03:15:23 PM »
They're only a guideline. They've done some analysis that suggests a certain percentage of international stocks might be optimal. You may disagree. If you're reasonably close to what they suggest, you're probably doing all right.

Spondulix

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Re: Website calculations for diversification
« Reply #2 on: January 22, 2015, 12:43:14 AM »
I get that. I may be asking the wrong question, cause what I'm really wondering about is alternatives. It was a surprise to me that it recommended 10-20% of my portfolio should be in alternatives (I'm under 2%, I think). The international part I understand where they're coming from. Alternatives... not so much.

Are there diversified funds or indexes you can invest in?? I'm wondering what I need to look up, learn about, etc. Curious if it's really necessary part of a portfolio - what is it that made it so significant in that analysis? I thought I was pretty widely diversified between index funds and bonds, but this is making me question.

innerscorecard

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Re: Website calculations for diversification
« Reply #3 on: January 22, 2015, 12:57:04 AM »
Don't take what they say too seriously. People in finance and investing will spit out a lot of numbers, but they don't mean that much. After all, what's "optimal" for any one person depends on that person's preferences.

The one thing I can say is that you shouldn't follow the herd into whatever's hot at the moment, whether its alternatives or whatever it might be.

wtjbatman

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Re: Website calculations for diversification
« Reply #4 on: January 22, 2015, 05:53:09 AM »
I believe (someone will correct me if I'm wrong) that Personal Capital considers REITs to be "alternative". I hold 10% of my portfolio in a REIT index fund, and that's what it says for me. Personal Capital may be suggesting that you tilt towards REITs and/or other alternative investments. What the other investments are, I have no idea.

Spondulix

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Re: Website calculations for diversification
« Reply #5 on: January 22, 2015, 05:31:20 PM »
Looking at their site: https://www.personalcapital.com/investing/diversified
"Alternatives such as Real Estate, Gold and other Commodities play an important role in most Personal Strategies"

What are your thoughts on investing in REITs vs considering the value of what you actually own in real estate? I guess I've always considered the investment in my house as a balance to what I own in stocks/bonds.

wtjbatman

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Re: Website calculations for diversification
« Reply #6 on: January 22, 2015, 05:49:43 PM »
Looking at their site: https://www.personalcapital.com/investing/diversified
"Alternatives such as Real Estate, Gold and other Commodities play an important role in most Personal Strategies"

What are your thoughts on investing in REITs vs considering the value of what you actually own in real estate? I guess I've always considered the investment in my house as a balance to what I own in stocks/bonds.

House you live in? I don't even consider it part of my investments at all. For the vast majority of people that would put them dangerously overweight in real estate.

Rental houses you make money off of? Well that's (a lot) different. I'd probably avoid REITs then. But since I don't own any rentals, I'm comfortable with 10% of my portfolio in REITs.

Abe

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Re: Website calculations for diversification
« Reply #7 on: January 22, 2015, 09:34:03 PM »
I agree - house doesn't count as an "investment" unless you are willing to be homeless or rent it out and sleep on the couch for cash. REIT mutual funds are a less risky alternative for real estate investment due to diversification (multiple commercial properties held instead of just your place). However, they are subject to the risk associated with investment in one sector (vs. a total stock market index fund). Looking at Vanguard's offerings, they have been more or less tracking stocks recently since a lot of property is being bought by large commercial interests funded by investors who have money to spend because the stock market is doing well.

I'd stay away from individual commodities such as gold because of the lack of diversification. Are there equivalents of REITs for commodities?