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:
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
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!