It has been a long time since I reported on my asset allocation. If you have been following the blog for some time now, then you know that I believe that the right asset allocation is important for a dividend portfolio – any portfolio for that matter. Among the academic reasons for a sound asset allocation that covers the right balance between risk and reward which leads to the right level of volatility for a portfolio which also helps determine return, there are other reasons I like asset allocation. In this post I will discuss that reasons and then provide you with an update on what my current allocation looks like.[ad#tdg-embedded]
Why Asset Allocation is Important to Me
One of the reasons I find asset allocation so important is that it helps guide me with what asset class to purchase or even sell at any given time. In my own allocation I have, at a high level, outlined the percentage of Canadian equities, US equities, international equities, and fixed income that I need to hold. I have set a target allocation that I want my portfolio to hold and the process is simply a matter of monitoring which assets are above or below target and taking action.
That action can be either to buy more of the underlying securities making up that asset class or selling some of those securities off. For example, if my Canadian equity allocation is low I might buy some more Royal Bank stock or Canadian value index fund.
From time to time certain asset allocations can be higher that target. I actually rarely sell in this case as I am constantly adding money to my portfolio which then allows me to bring the other assets in line with the overall assets. This helps reduce transaction costs and does not force me to sell securities that I still believe in.
The underlying concept here is that I am taking out a good portion of the emotional aspects of the investing process. It become much more mechanical.
My Current Asset Allocation
This leads to my current asset allocation. Right now it is pretty close to where I want it to be but there is some work to do in both US equities and international equities. I will do a further review but I suspect I will be purchasing some more international equities in the near future. You may also notice that my fixed income is low – I have decided to take on more portfolio risk by lowering fixed income and investing more in equities. Of course, this allocation may not be for you.
Click to EnlargeI will continue to monitor this asset allocation on a monthly basis and make adjustments as necessary. It has worked for me in the past and I am suspect it will going into the future.
Hi, I liked this blog entry, but I think using a line graph is confusing. Why not a Bar Graph? or a Pie Chart for each, Actual vs Target. I think either of those types provide an easier to read “picture” of your allocation.
I am of the same mindset, adding investments in other areas in order to offset any over-weighing. I just discovered I will be recieving a significant amount of shares which will make me grossly overweighted in the US so now I am figuring out how to restore the balance.
No matter which way I look at this, in the end, I can either re-balance or increase my holdings elsewhere. Looking forward to your next update.
I’ve been buying preferred shares for my fixed income portion but The yield curve is flattening so the long term rates are dropping.
I’ve fallen behind on my fixed income allocation but I can’t justify buying more preferred shares as stocks became cheaper and fixed income became more expensive.
I think balance is important but it doesn’t mean buying overpriced assets in the name of balancing.
Good read. Looking forward to future updates.
Can you please go into a little more detail into why your allocation is broken down the way it is? (i.e., how did you decide on the respective percentage target allocations?) Was it just arbitrary even division (30 30 30, and the last 10 fixed income?)?
You are betting on fast US recovery. Well that may be the case. Problem with China is thay lack in patents. What makes you lower on your targated International part? I would love to see your return on those allocations.