Wednesday, August 23, 2006

current asset allocation model for taxable accounts (as of 2006-08)

Here was my initial ETF investment strategy formulated in January 2006:

30% Large Blend - Russel 3000 IWV
20% Midsize Blend - Russel Midcap IWR
10% Small Blend - iShares S&P 600 IJR
21% Foreign Blend - MSCI EAFE EFA
11% Emerging Mkt - iShares Emerg EEM
8% Latin Blend - iShares SP Latin ILF

A few critical points:
  • I developed this strategy in January 2006.
  • After reading Dr. William Bernstein's The Four Pillars of Investing, I've decided it is not sufficiently diverse - I will change it over the next few months.
  • My retirement assets are predominantly placed in lifecycle accounts (mostly Schwab's SWERX). I will continue to hold these here until I either: a. move my accounts to a investment advisor associated with DFA and the like OR b. managed to rebalance my taxable account sufficiently that I become confident I will not slack with the taxable account.
  • What is in the account now represents my initial investments, I was expecting another $40k-$60k from illiquid insurance investments. Their liquidation is delayed - I hope it will happen by year end. Because of the delay, my accounts may not be sufficiently balanced and I did not have an opportunity to purchase iShares Latin ETF (ILF).
  • As I am managing my taxable and non-taxable accounts with different strategies, I am not truely optimizing my retirement accounts for their most effective tax use; i.e. high taxable income producing assets should be placed in retirement accounts. I plan to switch to a single asset allocation strategy once I move away from the life cycle accounts.
    My taxable investment account is a fraction of my retirement account - taxable to retirement ration is about 1:8 (my Networth IQ account combines insurance investments and taxable accounts so it might be confusing).
  • Rather than jump into a new asset allocation model right away, I will probably wait until I'm further along in Dr. Bernstein's book and have a better idea when the insurance funds will be transferred into my taxable account.
  • I am currently re-investing dividends. Barry Barnitz has pointed out that it's better to accumulate dividends in a low tax or tax free money market and use them to re-balance. Great point!

I will try to create a monthly update of my taxable portfolio holdings and performance along with my other monthly postings. You should be able to see my changes in holdings as well as overall performance.

Currently, I think my portfolio lacks the following:

  1. explicit value investments
  2. explicit dividend oriented investments (do dividend producers lean toward value or growth - seems like value)
  3. commodities / precious metals (at current prices I'm a bit anxious)
  4. real estate / REITs
  5. Bonds / fixed income products

I'm not feeling too anxious about the fixed income side of things as I have a very large cash ($120k) reserve earning 5.25% in online money market accounts. I'm not sure if/how I should factor it into the portfolio, however, I'm sure it would over-weight me on the fixed income side. It is necessary to maintain the high cash position due to a pending medical matter that will impact our earnings. All should be resolved by January 2007.

As I continue my research I will post alternative asset allocation models. The soonest I would restructure the model would be upon liquidating the insurance monies - no clear time frame can be determined. I hope within two months.

Have a wonderful day,


PS Blogger has been cranky all day. I will have to upload the charts and graphs tomorrow.

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