July 11, 2024

Bench Rest Bags

Designing Homes With Heart

What is a Balanced Portfolio?

What is a Balanced Portfolio?

So what do I consider a balanced portfolio? And since I practice what I preach, where is my money? First the where and why, then some required reading if you want to get analytical about it. I am very big picture, and do not try to speculate on a micro level with any of this money. I intend to follow this model indefinitely, but I would encourage you to take a long term view with your own strategy. I only hold index ETF’s and low cost index funds.

I allocate my invested assets in only 5 positions, and keep nothing in cash. The largest position by percentage is what I can “international” at 40{13624d55b67f4b161de617d2e9d293368a3a357ee2b9d3c0f7245ef1c05927df}. It is an index of the whole non US world weighted by GDP. These holdings are very broad and inclusive, which you will notice as a theme.

The second investment is in the domestic market. S&P 500 index at 37{13624d55b67f4b161de617d2e9d293368a3a357ee2b9d3c0f7245ef1c05927df}, plus a 13{13624d55b67f4b161de617d2e9d293368a3a357ee2b9d3c0f7245ef1c05927df} Small Value stock index kicker. So a total of 50{13624d55b67f4b161de617d2e9d293368a3a357ee2b9d3c0f7245ef1c05927df} invested in domestic equities, giving a slight bullish tilt to domestic growth over my lifetime.

The only other holding that can be considered a true investment is a index of US REITs (Real Estate Investment Trusts, think malls and skyscrapers) at 7{13624d55b67f4b161de617d2e9d293368a3a357ee2b9d3c0f7245ef1c05927df}. I tried to index International REITs too originally, but low trading volume made it very difficult.

The last 3{13624d55b67f4b161de617d2e9d293368a3a357ee2b9d3c0f7245ef1c05927df} is in TIPS (inflation protected treasuries). These investments in the given percentages are the synthesis of everything I have read on the topic, along with my personal thoughts of what will globally transpire over my investing life.

My main sources of information, besides random articles, conversations and books I do not recall, were the following two books. The Future for Investors, by Wharton Professor Jeremy Siegel, also author of the late nineties Stocks for the Long Run (not read). They ran countless tests on model portfolio’s returns over the last half century, to determine the most effective breakdown of investments. Not too dry and provides documented backup to their claims. The second book is more forward looking, adjusting his previous claims based on effects of the retirement of baby boomers.

The Four Pillars of Investing, by Dr. William Bernstein (former neurologist), is less statistical than his first book The Intelligent Asset Allocator (not read). It looks at asset allocation with a long time horizon, but it is more conversational, containing plenty of theoretical discussion.

All of these books aim to maximize long term returns by aggregating the overall returns of the market as a whole, while decreasing total risk. I recommend you at check them out, then integrate your own thoughts and assumptions. Whatever your portfolio ends up looking like, I (obviously) recommend you keep a balanced portfolio.

The previous was a look into my asset allocation strategy and you should do your own research and due diligence. This was for informational purposes only.