Asset Allocation & My Investing Strategy

I really can’t believe I’ve had this site for so long and haven’t laid out my basic investing strategy and asset allocation.

As of the writing of this post, just about all of my investing takes place in retirement accounts. Therefore, by default my timeline is very long. However even if this wasn’t the case, I prefer putting my money into stocks or funds that are solid and fundamentally sound. You won’t find me putting my money anywhere near some biotech stock rumored to have a drug getting FDA approval next week or any other random “hot” tips that I come across. If I wanted to gamble with my money I’d much prefer to hit the roulette tables.

My Rules For Investing

Invest only in things I understand: Meaning no companies in fringe or confusing industries, no overly complex Funds/ETF’s , no weird derivatives, swaps or whatever else so-called “pro’s” invest in.

Pick an Asset Allocation, and Stick to it: I won’t be selling all my stocks and buying gold when the market turns bad, and I won’t put all my cash into stocks when the market is hot. The asset allocation I choose is chosen because I believe it will perform best for me in any market conditions.

Invest (semi) Passively: I will be using Index Funds and ETF’s as the foundation of my portfolio and will be supplementing my portfolio by investing in high quality dividend paying stocks. Anything I buy I plan to hold for the long-term unless a fundamental change in the investment quality dictates I sell.

Maximize the Contributions My Employer Offers: I will contribute at least as much required to receive the full match from my employer in the company 401(k) plan. I will also increase the percentage I contribute into the plan each time I receive an increase in salary.

Invest Only in Stocks Trading at a Discount: I wouldn’t willingly overpay for anything else in life, same goes for the stocks I buy.

Reinvest All Dividends to Create a Passive Income Stream: Working much in the same way as compound interest all dividends received will be reinvested into more shares of the same investment. As I accumulate shares and as companies raise dividends I will be creating a solid income stream for myself come retirement.

My Asset Allocation

Asset allocation doesn’t need to be very complex. If you want to invest in many different asset classes, more power to you. However the asset allocation I’ve chosen for myself is pretty simple. It breaks down something like this: (If you need help determining your own asset allocation check out these posts)

asset allocation        

I review my asset allocation about once a year to see if any re-balancing is needed. That’s when I’ll sell portions of my investments that have become too heavily weighted and buy the ones that are too lightly represented to keep my portfolio in line with the allocation I’ve chosen.  The goal is to have a sound, diversified portfolio that will protect my original investment capital while providing me with a solid rate of return regardless of the market conditions.

While my portfolio is currently divided between a 401(k), a Roth IRA and a Rollover IRA my asset allocation applies to them as if they were all one entity. I think that’s a very important point that isn’t brought up enough. I don’t apply the asset allocation you see above to each investment account I have, so for example, my Roth IRA may be heavily weighted towards Large-Cap US Stocks. That’s OK, as long as my complete portfolio roughly resembles the asset allocation above.

So there you have it. A basic overview of how I approach investing and what I actually do with my own money.

Disclaimer: I’m not a licensed financial professional and this is just how I choose to invest for my own specific needs. Your situation is obviously different and your investment choices should reflect that. Don’t be an idiot and blindly copy this plan or anyone else’s you may read on the internet. Do your own research before you invest, or speak to a professional you trust. OK?…OK.


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4 Responses to Asset Allocation & My Investing Strategy

  1. Great overview! I think I’m just a little bit more conservative than you are – I have 70% equities and 30% fixed. But I managed to go through the entire stock market downturn without withdrawing any money (and kept contributing), so I guess it’s an allocation I can live with.

    • FirstMillionBlog says:

      Thanks for the comment. Regardless of allocation, its impressive that you didn’t withdraw during the recession. At times I’m sure you needed nerves of steel!

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