Perhaps more has been written on the topic of asset allocation than any other aspect of long term investing. There are so many different strategies and calculators available that it is hard to decide which even should be considered. I have given a lot of thought to asset allocation in our retirement portfolio. Here are some asset allocation models and tools that I have used or at least looked at.
Asset Allocation Strategies
There are some experts out there who have more radical ideas about asset allocation. One is the late Harry Browne, a renowned libertarian who promoted his “Permanent Portfolio” that has a significant gold component.
Perhaps the most radical asset allocation strategy of all (in its conservatism) is that of economist Zvi Bodie. According to his theory of “worry free investing”, we should avoid equities altogether and put our money in TIPS (not TIPS funds by the way) or I-Bonds. I highly recommend his videos produced by Boston University School of Management. I have embedded one of these below. According to Bodie, stocks are just as risky in the long run as they are in the short run. Conventional stock market wisdom is not wisdom at all.
Asset Allocation Calculators
The Iowa Public Employee Retirement System Asset Allocation Calculator lets you use sliders to adjust seven different variables. The calculator instantaneously displays a resulting allocation. You also have the option of printing a report based on your inputs. This same calculator is available at BankRate.com and on many other reputable financial sites.
Financial Engines is a more sophisticated calculator that takes into account your existing portfolio and other personal factors and will recommend allocation changes based on your targeted retirement income. Some retirement plan providers offer this service for free. Individual investors may have to pay.
The Forbes Asset Allocation Calculator is very basic, limiting you to three asset categories: stocks, bonds, and cash.
The Nationwide Financial Asset Allocation calculator is simple in the inputs it requires: years to retirement and years of withdrawals.
TIAA-CREF takes a slightly different approach to determining a preferred asset allocation model for you. It presents the reader with different sample portfolios and then asks the reader a number of questions about them.
Final Thoughts on Asset Allocation Strategies and Calculators
If you are at all interested in asset allocation strategies, I strongly recommend that you read about the science. Don’t just follow conventional thinking and rules of thumb. Two good places to start your study are Ibbotson Associates and Craig Israelson.
Image credit: Garretc