Asset allocation and risk tolerance

Financial Planning - Financial planning in general. (Moderated) 

  Yahoo!   Google   Windows Live   del.icio.us   digg   Netscape

Subject Author Date Asset allocation and risk tolerance rick bryan 05-16-2007  Re: Asset allocation and risk tolerance wyu 05-16-2007  Re: Asset allocation and risk tolerance Physlab 05-16-2007
Posted by rick bryan on May 16, 2007, 5:05 am Can someone help me understand portfolio design? An advisor might recommend a portfolio that's 60% stocks and 40% bonds, let's say. Then on the risk tolerance questionnaire a client might come out as "moderate," for example. And the model portfolio for that investor might be 5% aggregate bonds, 20% large cap value, 20% large cap growth, 15% mid-cap . . . etc etc. I'm just making up these numbers. But my question has to do with not understanding how to reconcile a "60/40" stock/bond portfolio with a model asset allocation portfolio that's defined in terms of large cap, mid-cap, small cap, etc. Are these two ways of designing a portfolio supposed to coincide somehow? What am I missing? Posted by on May 16, 2007, 5:51 am > But my question has to do with not understanding how to > reconcile a "60/40" stock/bond portfolio with a model asset allocation > portfolio that's defined in terms of large cap, mid-cap, small cap, etc. > Are these two ways of designing a portfolio supposed to coincide somehow? Every category can be further broken down. Say you want 60% stock and 40% bonds. Then you start splicing up the stock portion: 40% large 30% small 30% intl Then splice up the bond portion: 50% short 30% medium 20% long Multiply the sub-percentages against the overall percentenges -- example, 40% large X 60% stock = 24%. So you end up with something that looks like: 24% large stock 18% small stock 18% intl stock 20% short bonds 12% medium bonds 8% long bonds Posted by Physlab on May 16, 2007, 4:56 pm > Can someone help me understand portfolio design? > > An advisor might recommend a portfolio that's 60% stocks and 40% > bonds, let's say. > Rick, When I think of portfolio design, I break the market up into the following asset classes. Large-Cap Value, Mid-Cap Value, Small-Cap Value, Large-Cap Growth, Mid-Cap Growth, Small-Cap Growth, International, REITs, and possibly bonds. Then I set up percentages I wish to invest in each asset class. For the international, I will break that up further into a wide variety of emerging markets and countries. Even as a retired person, I do not use bonds as I have income from "bond equivalent" investments such as social security and pensions. BTW, I am using MVO software to aid in setting up asset allocation percentages for future years. Physlab Similar Threads Posted Asset Allocation and MVO May 16, 2007, 7:12 pm Pls help Asset Allocation Question October 13, 2006, 6:49 pm Asset Allocation question October 20, 2006, 6:24 pm Asset Allocation question December 22, 2006, 11:25 am re: asset allocation/ bonds January 9, 2007, 1:34 pm Re: Matrix Asset Allocation August 1, 2007, 4:05 pm Zvi Bodie's asset allocation January 27, 2008, 7:27 pm Re: Zvi Bodie's asset allocation January 31, 2008, 12:20 pm Does a person have only one asset allocation? March 31, 2008, 8:12 am Help for asset allocation theory April 14, 2008, 1:25 pm