Asset Allocation models

There are different asset allocation models that gets recommended by various folks. 60-40/50-50/70/30/80/20/x-(100-x) and so on. Now there is no one out there who will say just do not allot to stocks or bonds:). I think that is important to have at least some that is away from both stocks and bonds. Preferably you can put them in a high interest safe savings instrument. CDs or High Yield MMAs or High Yield online savings account - lot of options are there. 

First off, there is no getting around the fact that there has to be earnings in huge magnitude .  There is difference in earning a 100k vs a million vs a billion. Those are very very different. And then the savings part. Rather than percentages and sticking to budgets, I have been more of a free bird and take care of basics of life and savings and the rest will follow. I would not say that that was bad or worked very bad for me. But then again I did not have a budget so maybe there is no real way to know. The savings rates and balances are not that bad. So, I would say that let us just continue with the basic things,  a bit of big picture as well as small picture guy. Now, back to the asset allocation, early the savings the better. 

This vanguard paper is good: https://personal.vanguard.com/pdf/s285.pdf

And: https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations

This site is something that I like for testing out various allocation models: 

https://www.portfoliovisualizer.com/

They largely give the stock bond split. Which is good. But dont ignore the safe - govt employee pension secured guy model where all is in treasury or rather CD and you get better rates thru them. Though since 2008 it was in 0s, as of the time of this writing, the bankrate.com websites shows banks such as Alliant CU, Ally Bank, Discover Online savings, PenFED CU, Synchrony Bank?, NavyFED CU, Nationwide bank, Airforce CU etc among others who are giving between 0.8 - 1.1 or something similar. Not too bad. I would say better than the prime money market rates and flat line rates. A disadvantage is that rather than having all in at one place in Vanguard and giving you a big picture and maybe a voyager client account etc., it really does not have major benefits in the sense that it can work to your disadvantage by you being lax about big trades. While having it in different locations and moving only few amount of money at a time will get some discipline. The downside is of course too many accounts to manage. What is the ideal number? I would say something like 3-4 .. So if you have savings with Discover and HSA with Alliant CU, opening IRA with these two is no brainer. The rest - open as needed. Maybe have a minimum of $100 or so in it all the times. Till one reaches say 60 and then liquidate and maybe have only few. Till then, run riot with it:)

Back to asset allocation, the 50-50 seems to be as good as 80-20 but will less risks. But earn more and save more. Then put some in CDs, put some in global countries like India or Singapore. Then put in local USA stocks and bonds. And then use the bilo sellhi technique to have it in a state of flux.

Here is the excerpt that I got from MyMoneyBlog:

Vanguard did a similar study called Penny saved, Penny earned back in 2011 that compared three levers: savings rate, portfolio asset allocation, and also starting to save earlier. Take the following baseline scenario:

• Investor begins working at 25, but starts saving at age 35.
• 12% savings rate
• Moderate asset allocation (50% stocks and 50% bonds)
• Salary starts at $30,000 but increases with age

Now, here are three ways in which a worker could increase their final savings balance at retirement (age 65).

• Option #1. Invest more aggressively with an asset allocation of 80% stocks and 20% bonds, while keeping your 12% savings rate and starting age of 35.
• Option #2. Raise your savings rate to 15%, while keeping your starting age of 35 and 50/50 asset allocation.
• Option #3. Start saving at age 25 instead of 35. while keeping your 12% savings rate and and 50/50 asset allocation.

Which single option do you think has the most impact? The results are based the median balance found after running Monte Carlo computer simulations based on 10,000 possible future scenarios for each option.

Scenario	Median Balance at age 65	% Increase vs. Baseline
Baseline	$474,461	–
Option #1 (Aggressive asset allocation)	$577,133	22%
Option #2 (Raise savings rate)	$593,077	25%
Option #3 (Start saving earlier)	$718,437	51%

Between the three “levers” you could pull, starting to save earlier wins by a significant margin, which is an important truth but minus a time machine today is the earliest we can start saving more. After that, a higher savings rate is a more reliable path to improving your odds for success. Investing with significantly more risk performs somewhat similarly on a median basis, but actual results will vary the most widely.

As you can see, start early and save a lot. Then diversify with less risk to you. So even 50-50 is not that bad and gives you less swings. So all in all concepts like Asset allocation or Rebalancing will not provide that much variance. They are more like toppings and as long as you dont over do these things, you should be fine. So no too much rebalancing or too much obsessed about asset allocation. Rebalancing, btw is another tool in which there is periodic shifts but back testing show, again in the same website above, that there is little difference as such and you could be fine without it. So do some rebalancing and live the rest as is. When there is a winner stock or ETF, leave it as it is. When there is a loser that might rebound, leave it as it is. Other times, maybe sell a few or buy a few more. Really dont over think these things.