Tuesday, June 12, 2007

Asset Allocation for June 2007

This weekend I spent some time tweaking our portfolio a little bit, to factor in money rolled-over from my wife's old 401(k) to her IRA (see this previous post for several reasons to roll-over an old 401(k) fund).

Here is our currect asset allocation:

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After the re-balancing, we are pretty close to our target allocation for the near term. Note that we are currently below our target exposure to the real estate market. We establish our exposure to this asset class through Vanguard's Total REIT Index fund (VGSIX). Our REIT investments have seen several years of double digit price appreciation and I think they are probably due for a substantial correction. In addition, I am still not comfortable that the real estate market has returned to sanity, so while I did not sell any of our current VGSIX holdings, I did not put any more money into that fund. In the longer term, probably within the next 24 months, it is my intention to raise our exposure to the real estate market segment to approximately 10% of our portfolio.

I am also considering creating a direct exposure of approximately 5% of the portfolio to a basket of diversified commodities (including precious metals, oil & gas, and agricultural commodities). I will only do so if I come to the conclusion that this will create some diversification benefit, i.e. I need to understand if and how commodity prices are correlated with the value of some of our other asset classes. If I decide to pursue this investment option it will be as a long term risk reduction strategy, not as a speculative move.

Any insights on the subject will be appreciated.

1 comment:

Kevin said...

Since you're soliciting comments (and in spite of the fact that I can't be sure of providing any really good insights), here you go:

I notice that you have a section dedicated to an international fund. I don't know about that one. I would recommend splitting that into two sections: one for mature markets and one for emerging. I like having some money in Europe right now because the dollar is getting weaker and the Euro is edging up. Also, the European market continues to make more free market reforms, so it has room for stable growth. On the other hand, I fear that China is a big bubble at the moment that's going to pop -- it's way overheated. I don't know what the asset allocation is of the fund you're in, but moving that into two separate funds would give you a lot more control.