April 21, 2014

Market Capitalization Asset Allocation

Coca Cola Stock Certificate

One particularly popular strategy used by asset allocation investors is to divide their stock investments into different "piles" based on market capitalization.  (If you are a new investor, you may not know what market capitalization is.  Market cap, as it is often called, is the price it would take to buy 100% of all of the outstanding stock in a company at the current market price.  For instance, Coca-Cola currently trades at $57.68 per share.  There are approximately 2,317,267,684 shares of st … [Read more...]

Asset Allocation Rebalancing

Asset Allocation Rebalancing Strategy

One of the cornerstones of asset allocation is the concept of rebalancing.  Done correctly, rebalancing forces you to buy certain investments when they are undervalued (cheap) and sell when they are overvalued (expensive).  In effect, it makes the owner of the portfolio a value investor without the need to analyze individual companies.  It can even be taken one step further with something known as tactical asset allocation. How Rebalancing Supports Your Asset Allocation Strategy Once you've ch … [Read more...]

International Asset Allocation 101

British Pound Sterling Banknotes

Most growth asset allocation model portfolios call for exposure to the international asset class. In fact, in the article Factor In Your Income Sources When Seeking Diversification, I explained that one of the ways my own family reduced the risk involved with having such a big part of our net worth invested in private businesses involved in domestic manufacturing was to park almost all of our retirement assets and plans in international stocks, bonds, mutual funds and real estate. What does … [Read more...]

The Talmud Asset Allocation Model Portfolio

Talmud Asset Allocation Model

Asset allocation is a cornerstone of modern portfolio theory, yet it's as old as mankind itself.  In fact, the first known asset allocation model can be found in the Talmud.  Even more interestingly, those who followed the ancient investing prescription actually beat the market over the past decade.  Is the Talmud asset allocation model right for you and your portfolio?  Let's take a look at the specifics. The Talmud Model: Three Asset Classes, Divided Equally The Talmud model of asset all … [Read more...]

Passive Income Asset Allocation Model Portfolio

Passive Income Portfolio Asset Allocation Model

Asset allocation models designed to generate passive income for investors remain among the most popular of all time because everyone wants to be able to live off their money.  Whether you are retired and need to augment your Social Security income, or you are wealthy and want to generate passive income without touching your principal, this asset allocation model may be a viable solution to your investing needs. Asset Classes in a Passive Income Asset Allocation Model The most popular asset … [Read more...]

Balanced Asset Allocation Model Portfolio

Balanced Asset Allocation Model Portfolio

A balanced asset allocation model portfolio is one designed to generate a steady combination of growth, income, and capital preservation.  The intention is to create a combination of asset classes that results in lower overall volatility so the investor doesn't need to worry about wild market fluctuations because the holdings in their account mitigate each other to some degree. Sample Balanced Asset Allocation Model Portfolio A typical balanced asset allocation model portfolio may look … [Read more...]

Growth Asset Allocation Model Portfolio

Growth Asset Allocation Model Portfolio

For young investors in their 20s, 30s, and even 40s, with decades until retirement, steady jobs, and plenty of savings, an aggressive growth asset allocation model portfolio may be the best choice.  The caveat: If the investor cannot handle volatility, watching their assets drop 50% on paper one year or skyrocket the next, they should go for a balanced asset allocation model portfolio instead because they will be emotionally happier, even if it means they won't be as rich as they could have … [Read more...]

Inflation Asset Allocation Model Portfolio

Inflation Asset Allocation Model Portfolio Chart

Inflation is one of the most insidious taxes investors face, watching their purchasing power drop each year as a result of governments printing money to finance debt.  For fixed income investors, inflation is an even bigger threat to their standard of living.  That's why many professional wealth advisers and portfolio managers structure inflation asset allocation model portfolios designed to help combat the destructive forces of inflation over time.  By investing in assets that generate capital g … [Read more...]

Deflation Asset Allocation Model Portfolio

Deflation Asset Allocation Model Portfolio

Deflation, the falling of prices and asset values, can pose severe financial risk to those in debt because their income and assets shrink, while their fixed-rate debt remains constant. This presents investors with a potentially dangerous decision: Which assets can you hold without watching your wealth disappear into the ether?  The folks at The Wall Street Journal looked into the issue and presented a proposed deflation asset allocation model.  We're going to take a look at it, and propose one o … [Read more...]

How Pensions and Annuities Change Your Asset Allocation

Pension Annuities Asset Allocation Bonds

If you are blessed enough to have a pension or a decent sized annuity with a financially solid insurance company, your appropriate to asset allocation must be entirely different than your less fortunate neighbors. The reason is because whether you realize it or not, you indirectly have a portfolio worth hundreds of thousands, or perhaps even millions, of dollars worth of bonds, cash, and fixed income securities.  Don't believe it?  Let me explain and you'll see the reality. How Pensions and A … [Read more...]