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What concepts can I use to guide the allocation of assets in my portfolio?

I am 65 years old. I have $1,500,000 from divorce proceedings. What concepts can I use to guide the allocation of my assets in my portfolio?

Marriage / Divorce, Financial Planning, Asset Allocation
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April 2018

It's been said that one's asset allocation determines up to 90% of your portfolio's returns, so this is a very important question. To answer this, we can go from the simple to the more complex.

One often-used rule of thumb is to allocate 100 minus your age in stocks, in this case, 100 - 65 = 35% in stocks, and the rest in bonds and cash. The reasoning for this is because as we get closer to retirement, we want to reduce the risk of a big decline in asset values, which is what occurs when we shrink the allocation of stocks as we get older. This means that your allocation to bonds will also correspondingly increase as you get older to give you some more stabillity of capital.

But since this is a one-size-fits-all approach, it often does not take into consideration one's unique circumstances, like risk tolerance or cash flow needs, and so this approach should be taken with a grain of salt.

One approach that would be a bit more tailored your specific circumstances is to take the online questionnaire that Vanguard provides for free:


Vanguard manages over $5 trillion in assets, so I would be open to using the results of the questionnaire as a very good starting point for your asset allocation.

Within one's allocation of stocks and bonds, you'll need to determine what stocks and bonds to own. Should you own an index fund or individual stocks? Research suggests that index funds are very good vehicles, since they have tended to outperform actively managed funds over long periods of time (about 80% of the time). Should you own US stocks? International stocks? Growth stocks or value stocks? Large, medium, or small company stocks? What kind of bonds should you own? Should you own taxable or municipal bonds? Short term bonds, intermediate term bonds, or long term bonds? Investment grade or high yield? Short term interest rates are rising meaningfully, so it may make sense to consult with an advisor regarding what kind of bonds would make sense for your risk tolerance and tax bracket.

Please feel free to reach out to me if I can assist you further.

April 2018
April 2018
April 2018
April 2018