Asset Allocation to the Max for Your Retirement Portfolio
June 5, 2008
For me, my retirement portfolio is the most important one I have because it’s what I’m going to have to live on later on in life. So, I keep a pretty close eye on it and have it set-up in what I think is a good way.
But then I read an article by Roger Nusbaum on TheStreet.com today that suggested a much different retirement portfolio than I have. This one had a really detailed Asset Allocation.
In fact, Nusbaum’s piece was about an article in Barron’s this past weekend that featured a suggested portfolio by Mohamed El-Erain from Pimco, a major investment management service. Usually, I don’t write about an article based on another article, but this information was so interesting I just needed to share it with you.
It’s extremely detailed, much more than I’ve ever seen. And El-Erain really gets into specific investments in each asset class. So, what kind of allocation does he suggest? Here it is:
• Domestic Equities: 15%
• Foreign Developed Equities: 15%
• Emerging-Market Equities: 12%
• Private Equity
• Domestic Bonds: 5%
• Foreign Bonds: 9%
• Real Estate: 6%
• Commodities: 11%
• Inflation Protected Bonds: 5%
• Infrastructure: 5%
• Special Opportunities: 8%
Yeah, I know, it doesn’t add up to 100%. It’s just 91%. There’s no % next to Private Equity. But thru subtraction, I’m going to guess that it’s 9%.
The one thing about this portfolio is that only about 30% of it would be in domestic stocks. That’s a lot different from what I’m used to seeing. But I’m willing to consider and continue researching the suggestions El-Erain makes in his asset allocation. What do you think about this? Let us know.
I’ve read about asset allocation before. But I never saw it like this. I like how specific this one is with something like foreign bonds at 9%. I never even heard of foreign bonds. Can I buy them thru my Fidelity account? I really want to learn more about this. Thanks for giving me more stuff to look up and read about.
In the past, I’ve seen the predominant emphasis in domestic funds. And even in the not so distant past, I’ve also argued for the case.
Recently however,I am beginning to have a change of heart. That is, in part, besides diversification, much of the growth is now occurring in other areas of the globe (such as China and Latin America).
I agree that the diversification listed seems rather involved though… perhaps more than is necessary for the average individual investor. It’s either that, or more likely, I lack the comprehension on the importance of certain asset classes.
In the end, I believe that the fund management and expenses/loads should determine our buying decision. Depending on the extent, simplicity isn’t a bad thing. I recommend looking at Vanguard’s target retirement fund for some clues as to what I think is a simple but effective asset allocation.