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Results From a 4.25 Year Asset Allocation Experiment

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City Girl 's Financial Blog has reminded me about asset allocation. Not that one should ever forget about asset allocation, but I forgot about July 31, 2002. It's when I decided the market was at a low. I picked that time to start a Yahoo Finance Portfolio of $100,000 to see how it would fair if I invested it like I would for the long term. I didn't go back and rebalance as I probably should have, but 4.25 years later this is a good time to asses the experiment.

Here's the initial portfolio:

- iShares Russell 2000 Index (IWM) - $25,000
- SPDRs (SPY) - $25,000
- Vanguard Total Intl Stock Index (VGTSX) - $10,000
- Technology Select Sector SPDR (XLK) - $10,000
- Utilities Select Sector SPDR (XLU) - $10,000
- iShares Dow Jones US Real Estate (IYR) - $10,000
- Vanguard Total Bond Market Index Adm (VBTLX) - $10,000

That's a pretty simplistic portfolio and now I'm not sure I'd do it the same. It's returned $65,000+ over the last 4.25 years or about a 12.8% return. That's a pretty good deal, but I'm comparing a call that was close to the bottom of the market to time that might be close to the top of the market.

So if I had to do it again, I'd put some international exposure into the mix. At the time, experts said that 10% was about the norm. I thought it was weird to invest 90% in your own country, but there's history performance behind the logic. Nowadays, it seems as if the experts are more open to bigger investments overseas. I would agree with putting about 20% or maybe a little more of your investments overseas.

I also would diversify my stock holdings some. In my opinion, there's really little reason to invest in small caps, large caps, and the total market separately. I should probably have put a good amount in the total market (maybe $30,000) and small amounts in the small and large caps (maybe $10,000 each).

I'n the next couple of posts, I'll let you know how I'd set my asset allocation today. I think I'm 4+ years smarter, so we'll see if I learned anything.

Last updated on December 14, 2006.

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