Welcome to my blog where I discuss money, investing, politics, and anything else import in the world. I find it surprising that most people in their 30s have very little knowledge or interest in these areas. Of course everyone is interested in money, but very few take the time or have the discipline to properly save and invest it for the future or short term. For those who at least have the interest, I'll write about my experiences and methods of investing, and hopefully give you a head start in investing.

Sunday, March 9, 2008

My Equity Asset Allocation

I've already described in previous posts how I save/invest for short term goals using Vanguad's Prime Money Market and currently put half of my money there each month. The other half I invest in mutual funds and ETFs for longer term goals (5+ years). If you haven't already, read these posts first: Are you ready to begin investing?, Investing for the Short and Long Term, and Equity Asset Allocation.
I practice the simple philosophy of buy and hold for the long term using inexpensive funds. I encourage you to look at some popular allocations over at Marketwatch.com. I use the U.S. stcok market as my backbone, as I believe it will continue to rise over the long term, but supplement it with some other areas to be even better diversified. I'll go through my target allocation for this year:
  • VTSMX - 50% - This Total Stock Market Index fund is the backbone of my allocation and represents an investment in all U.S. domestic stocks. This includes large CAPs, small CAPs, mid CAPs, etc.
  • VGTSX - 10% - Total International Stock Market Index holds the larger European and Pacific funds, as well as emerging markets.
  • VEIEX -10% - Emerging Market Index increases the exposure to emerging markets, which has had great return recently, although traditionally it is a volatile sector.
  • VGSIX - 20% - REIT Index fund provides a very diversified investment in the real estate market.
  • DBC -10% - Commodity Index ETF that tracks 6 areas: Crude Oil, heating oil, corn, wheat, aluminum, and gold. Provides some inflation protection.

The recent return (as of March 7, 2008) is shown above for this allocation. Obviously, the year to date numbers won't look too good with the recent stock market performance. Also note that DBC has only been in existance for 2 years, so I don't have any five year numbers for it.
My goal for this portfolio was to continue investing in the U.S. stock market which has historically provided solid performance. In addition, diversify into real estate without having to actually buy property and become a landlord. The emerging and international markets also provide weaker corrolated returns, as does the commodities markets, for times when the stock market slows or weakens. I expect oil demand to only increase over the next few years, as will food prices. However, I am not sure how long gold can keep up its pace, but as the dollar continues to weaken it could continue to grow. I'll re-examine the target allocation at years end.
Comment below with your current target allocations.

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