The 6FF Asset Allocation

The 6FF Asset Allocation

Last week I wrote about firing my financial advisor and moving my IRAs and joint taxable accounts to Vanguard. In preparation for how to invest this money I’ll share with you my intended asset allocation.

Throughout this whole process, deciding to invest with Vanguard was the easy part. When researching and reading on asset allocation I found myself in the “paralysis by over-analysis” state. There is so much info available and almost all of it differs. The good news is that there is a perfect portfolio out there! Sweet, sign me up! Oh wait there’s also bad news. Short of having a crystal ball, you, me, John Bogle, Warren Buffet and your investment advisor have no idea what that portfolio looks like. Nobody does! The only way we know what perfect is, is to look at what was. And by that time it’s history.

When coming up with your desired asset allocation do your research. Diversify, but don’t overcomplicate it. Take the risk tolerance assessments that many sites offer. From that point figure out how much you want in bonds, US and International exposure and then pick your funds. You can do something simple like the often referenced Three Fund Portfolio of the Vanguard Total Stock Market (VTSMX), Vanguard Total International (VGTSX) and Vanguard Total Bond Marker (VBTLX). Or you can go for the slice and dice approach (what I plan to do) and carve out each sector of the market to your liking.

I had an idea of what kind of allocation I want before I started doing more in-depth research. One thing I confirmed is that I do not plan to invest anything into bonds. I just don’t see the point? I’m in my early 30’s and my investing timeline is still 15-20 years at a minimum, so why settle for drag on my returns by investing in bonds? There’s a few rules of thumb that I encountered for bond allocation. Invest your age in bonds (i.e. 31 = 31% bonds). Your age minus 10. Or just pick a flat percent like 10 or 20. If I were to consider bonds it would be extremely minimal at less than 5%. And with it being that small I just don’t see the point.

I’m still waiting for the assets to transfer to Vanguard from our current institution. Which, by the way, is charging is a $95 fee PER ACCOUNT to transfer. Unreal. They getchya comin’ and goin’. So for now I’ll just give my intended portfolio allocation and I’ll delve deeper into individual funds once things get settled.

US exposure will account for 75%. This will be split 25% into Large Cap, Mid Cap and Small Cap.

International exposure will account for 20%. I debated the most about how much to allocate here. I read anywhere from 10-40%. In the end I felt most comfortable with this.

REIT will take up the final 5%. This is a small percentage and might seem meaningless. But I like getting a little exposure in real estate and while it’s a little riskier, it will account for only a small percent of total portfolio.

So that’s it! It’s simple, easy to remember and should be easy to rebalance, which I plan to do yearly. What does your allocation look like? Are you a believer in bonds or a hater like me?

4 thoughts on “The 6FF Asset Allocation

  1. “I found myself in the “paralysis by over-analysis” state. ”
    << I'm still there.. i made a decision in March…but giving myself till June to implement it… just in case… the more you google, the more info you find… and you wonder how much of is it true??

    1. I agree. Transferring the money has taken a little longer than I thought so that alone is giving me enough of a chance to confirm which individual funds I’m planning on using.

  2. Hope you’re using the Admiral Vanguard funds, they have the lowest ER, besides the institutional ones. The Investor funds have higher ER. If you don’t have the minimum for the Admiral funds, typically $10k, you’d be better off with the corresponding ETFs. The ER for ETFs are mostly at par with the Admiral funds.

    Maybe I’ll write a post on this 🙂

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