Enhancing My Asset Allocation

Fixed Income - Bonds

I have been doing a lot of thinking recently about asset allocation and subsequently a great deal of research and investigation into what makes up a good asset allocation model for a portfolio. During this research, I consistently kept a couple of things in the back of mind with respect to my own personal portfolio and what I want to achieve with it. The consistent themes included the following:

1. I have 20+ years before I will use the portfolio for retirement purposes – for those of you trying to figure out how old I am, this has me retiring at about 55.
2. I beleive in broad diversification – the more diversified the better in my eyes.
3. I do not want to recreate the wheel – there are much smarter people out there that have done more research than me into asset allocation so I want to leverage this knowledge.
4. I enjoy the investing process, and am not looking to simplify my asset allocation too much. I will not mind, nor with I find it daunting, to hold 10+ asset classes within my portfolio.
5. I am not going to invest in hard to understand asset classes such as what Yale (LINK #1) calls it’s Absolute Return portion – in other words I will not be using things like Hedge Funds.
6. Along the same lines as #5, I will be keeping things simple by using index funds as much as possible. This does not mean that I am moving away from individual dividend stocks. Much of my US and Canadian investments will be in these types of assets. However, most of the other assets will be in index funds.

So with those things in mind, I set off on my research and have developed a much more broadly diversified and enhanced asset allocation. It is way more diversified than the one you will be familiar with already on this blog, as I have been very open with how it is structured. As a reminder, here is how my target and asset allocation currently looks:

The Dividend Guy March Asset AllocationClick to Enlarge

Pretty basic – nothing wrong with it but I felt I needed and wanted to be more broadly diversified. Here is my how my new asset allocation looks

The Dividend Guy’s Revised Asset AllocationClick to Enlarge

You can see that I have some work to do over the next few months (years?). I have split out my equity allocations into large and value, expanded my REIT into Canadian and US, added some value and emerging to global, developed the fixed income portion to include Real Return Bonds (inflation protected), and added some micro-cap stuff to the small-cap area. I feel this will be a good portfolio to hold over the next 20+ years. One that will provide nice risk protection and hopefully nicer rewards!

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  1. says

    Excellent read, well thought-out as always. I too have started pondering my asset allocation. It appears that you are much further down the road than me. I have just about completed a snapshot of where I am at and hope to post it next week.

    I look forward to watching your progress.

    Best Wishes,

  2. says

    I just came across your blog this week and have been reading up on many of your posts. You certainly have been doing quite a bit of research into these stocks and diversification.

    Did you happen to notice the WSJ article about the investor who diversified his investments overseas? Fascinating, I will be posting about it soon.

  3. Dividend Tree says

    Good one !! Particularly the article referencing Yale Endowment Fund. I read it twice to really understand what it means, and importance of diversified asset class. I agree with you and do not understand “absolute return group”. It has made me analyze my portfolio and showed me its out of whack. So now I have project for next three months. Thank you for sharing such an important aspect of personal portfolio management.



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