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Which asset allocation is right for you?

Let’s face it, we all want the ideal asset allocation. That perfect combination of asset classes that will make our dreams come true. A portfolio of funds that will repay our faith many times over, that understands our moods, will never test our sanity and will grow with us on the beautiful journey of life…


(Ahem. Sorry).

Get over it.

The perfect asset allocation doesn’t exist. Asset allocation is as much art as science. It doesn’t come with an answer correct to five decimal places – or indeed any decimal places – because the results will depend on unpredictable events yet to come.

Even Nobel Prize-winning Harry Markowitz didn’t bother computing his own efficient frontier, saying:

“I should have computed the historical co-variances of the asset classes and drawn an efficient frontier.”

But, he said, “I visualized my grief if the stock market went way up and I wasn’t in it — or if it went way down and I was completely in it.

So I split my contributions 50/50 between stocks and bonds.”

Still, like cats, dogs and soul mates, some asset allocations are more likely to fit with our temperaments and life stages than others.

Do you crave stability? A steady, reliable Eddy without too much drama? Or do you want fireworks? A volatile, tempestuous type that will show you the stars and drag you through hell?

It takes all sorts, so let’s glide through the the typical asset allocations you might meet, and see if we can find one in your postcode.

What asset allocation suits you?

Mr Average

Diversified, balanced, neither overly cautious, nor balls-out aggressive, Mr Average is a perfectly respectable choice. Ideal for someone in their 30s or 40s who doesn’t want too much complication in their life but still wants the chance to grow.

Asset class Allocation (%)
UK equities 10
Developed world ex UK 30
Emerging markets 10
Global property 10
Government bonds (Gilts) – short dated 20
Index-linked government bonds 20

This is a middle of the road portfolio that will do the job for the majority of investors. It diversifies across the main asset classes, and tilts 60:40 in favour of equities over bonds so you can expect reasonable growth but still have plenty of fixed income assets ready to break your fall when markets plunge.

The cautious or older investor can add 10-20% more bonds, while the more youthful or adventurous can spank up the equity or consider The Risk Taker portfolio, below.

The Virgin

Never done it before? Nervous? Not sure if you’ll like it? Then get into the groove with this simple and gentle soul.

Asset class Allocation (%)
Global equities 50
Government bonds (Gilts) – short dated 50

VWRL is a good global equity Exchange Traded Fund (ETF).

First-timers who don’t know what to expect are best off with a cautious portfolio that nevertheless has a bit of everything. It’s not too demanding, and will help you find out more about yourself when the markets cut up rough.

Young Buck

Aggressive and volatile, this is a portfolio for someone with time on their side and not a lot to lose.

Asset class Allocation (%)
Global equities 70
Emerging markets 10
Government bonds (Gilts) – intermediate 20

The heavy equity allocation promises fast growth but also big losses in a down turn. A 20-something has plenty of years to make up for any losses and is likely to do well if they buy lots of equities cheaply in the early years, which then bounce back later.

A lazy young buck could even just buy an All-World tracker or the 100% LifeStrategy fund and forget about bonds entirely if they are feeling super-aggressive. But be warned that you only really find out just how emotionally vulnerable you are in the dark downturns, not in the happy good times.

The Silver Fox

Steady, wise, it doesn’t have much bounce but is still quite spry for its age.

Asset class Allocation (%)
UK equities 20
Developed world ex UK 10
Emerging markets 5
UK property 5
Government bonds (Gilts) – short dated 30
Index-linked government bonds 30

A moderately cautious choice for someone nearing retirement or in early retirement. Equities still offer some growth but the large bond allocation offsets risk. Note that the equities and index-linked bonds (linkers) protect an older investor against one of their biggest threats – inflation.

Made Man

An embarrassment of riches means this one no longer has to play the game.

Asset class Allocation (%)
Index-Linked bonds 100

If you’ve more than enough assets to live on for the rest of your life then why take any more risk? You can afford to put your money in the safest wealth-preserving asset you can find, kick back and enjoy.

A linker ladder is better for retirement income than a linker fund, but harder work.

The Safe Choice

When you’re no longer working, you want someone who can meet all your needs but still pull the occasional surprise.

Asset class Allocation (%)
Annuity Variable
UK-biased equities The rest

Let’s say you retire with just about enough assets to provide for the basics – but it’s a close run thing. In this case an annuity can be used to nail down your minimum income floor.

Ideally an escalating annuity will inflation proof your guaranteed retirement income, but a fixed annuity can still work. The rest of your pot is invested in diversified equities with a strong UK bias to provide the potential for growth without much currency risk.

The idea is to use the growth from shares to compensate for the dwindling value of the fixed annuity in later life, as well as a source of emergency cash and bequests.

The Risk Taker

A deep and complex character – highly rewarding at times but can leave you wondering whether it’s all worth it.

Asset class Allocation (%)
Global equities 36
Global value 12
Global small cap 12
Emerging markets 8
Emerging market value 2
Emerging market small cap 2
Global property 8
Government bonds (Gilts) – short-dated 10
Index-Linked government bonds 10

Risk factors like value and small cap can juice your returns but at a price. The price is amped up volatility as you invest in riskier companies that are more vulnerable when the economy tanks.

This is a realm suitable only for investors who’ve researched the risk factor phenomenon and understand exactly what they’re getting into. Small value funds or fundamental indexing ETFs can replace the need for separate value and small cap vehicles, and, advanced practitioners may eventually consider momentum and quality funds.

A Little Bit Of What You Fancy

Has a finger in every pie but struggles to make a meaningful commitment to any of them.

Asset class Allocation (%)
UK equities 5
Global equities 35
Emerging markets 10
Global property 5
Government bonds (Gilts) – short dated 10
Index-linked government bonds 10
Global corporate bonds – investment grade 5
Global government bonds 10
Commodities 5
Gold 5

This portfolio contains every asset class you can make a decent case for holding bar the risk factors. However the level of complexity is only appropriate for passionate investors with large portfolios. Even then, 5% in gold probably isn’t going to make much difference to your outcome.

Fashion Victim

Finds it difficult to sit still, easily led, fickle, prone to bursts of enthusiasm and abrupt shifts in loyalty and direction, wants to be popular and on the cutting-edge, status orientated, good for a laugh…

Asset class Allocation (%)
Pick ‘n’ mix the asset classes above plus… Whatevs
High tech Whatevs
Wood Whatevs
Global water Whatevs
Low volatility Whatevs
Hedge funds Whatevs
Silver Whatevs
Oil and gas Whatevs
Frontier markets Whatevs
Clean energy Whatevs
China (or how about a MINT?) Whatevs
Consumer staples (or any other random sector) Whatevs
Global infrastructure Whatevs
3D printing Whatevs

Throw in a some random shares, Bitcoins, a bit of private equity, some vintage wine, art in a vault and so on in an ever decreasing semblance to any sort of plan.

Add decimal points to any allocation for the comforting delusion that there may be some kind of science at work. You’ve paid expensively for the advice – and will keep paying for it for many years to come.

Grandma wouldn’t approve of this one. He’s a wrong ‘un.

Nobel Prize-winning economist

AKA Harry Markowitz.

Asset class Allocation (%)
Global equities 50
Government bonds (Gilts) – short dated 50

If it’s good enough for Harry, the father of Modern Portfolio Theory, then… also notice how similar this is to The Virgin allocation.

Remember, the decision that will most affect your eventual returns is your division between bonds and equities.

The Man For All Seasons

AKA Harry Browne.

Asset class Allocation (%)
Equities 25
Government Bonds (Gilts) – long dated 25
Cash 25
Gold 25

The Permanent Portfolio offers fair long-term returns, low volatility, and excellent protection against most economic weathers: inflation (equities and gold save the day), deflation (the long bonds and cash soften the impact), recession, and extreme interest rates.

The Survivalist

Wild-eyed crank promises weekends in the woods.

Asset class Allocation (%)
Farmland 16.666
Water 16.666
Gold 16.666
Guns 16.666
Ammo 16.666
Zombie repellent 16.666

When the flames of the Apocalypse finally consume Western decadence then you’ll give the FTSE 100 the beating of its life. Yee-haw!

Which one are you?

So, how did you do? If you scored mostly ‘A’s then – hang on, this isn’t that sort of article!

If you’re not sure which one of these beauties suits you, then take a look at how to construct your own asset allocation from scratch.

Remember these are model allocations that show you roughly where you want to be. Your asset classes should be chosen from the picks above1 but your personal allocation should be adapted to your goals, risk tolerance, and time horizon.

Your allocations should also change as your circumstances change, and as you age. Our posts on asset allocation rules of thumb and developing a financial plan should help explain what I mean.

In the meantime, if you’re ready to roll then passive investors can cover off each asset class using index trackers from the low cost selection we’ve picked out.

Take it steady,

The Accumulator

  1. Not so much the zombie repellent and fashion victim set. []
{ 42 comments… add one }
  • 1 Frugal Sage January 21, 2014, 9:42 am

    The only way you can have a perfect asset allocation is with the knowledge of hindsight.

    I’d be closest to young buck.

    I disagree with the 2% allocations. For people with smaller portfolios, it’s almost an irrelevancy. For those with larger accounts, it would still do so little that the effect on the overall portfolio would be unnoticeable. The time and effort to utilize it and keeping tabs for taxation purposes is not worth the effort. Even 5% becomes a burden.

    The Survivalist is nice. But you forgot ‘bunker fortifications’.

  • 2 Under The Money Tree January 21, 2014, 9:52 am

    Well after a quick self appraisal I am ashamed to say I sit somewhere between Mr Average & Fashion Victim, with a touch of ‘Cowboy Landlord’ (long property exposure) thrown in for good measure.

    While I’m mostly a conservative equity income investor (with rental properties on the side) I have the odd punt on a fledgling mega trend or random small cap with a good story. I caught myself researching 3D printing firms a few weeks back!

  • 3 WestCountryEscapee January 21, 2014, 10:42 am

    An excellent post and I’m a slightly racier version of Mr Average but with 40/30/20/10 split between UK equities, ex-UK (half EM), Gilts and Property. I looked at a whole range of ‘easy’ portfolios including the Permanent Portfolio, averaged them out and the result seemed to suit my appetite. Like Under the Money Tree, I have a bit of Cowboy B2L too.

    I don’t really like owning the gilts but I think of them as an insurance premium to stop the whole portfolio going too wobbly. I hope to be financially independent in ten years or so and I’ll preparing some posts for my own blog on this.

    I wonder if the residential and B2L mortgages can be used to balance the equities in a similar role to the gilts. Obviously there is a tax position on the latter, but I wonder if anyone is ‘lifestyling’ their mortgage(s) in this way?

  • 4 Snowman January 21, 2014, 10:58 am

    Great post. I wasn’t comfortable with my portfolio until it suddenly dawned on me one day that the perfect asset allocation doesn’t exist.

    I’m not sure I fit into any of those portfolio types above though, so I think I will call my portfolio the ‘not g(u)ilty portfolio’ as it contains

    66% equity trackers
    34% best buy savings accounts

    (the equity tracker breakdown is 20% FTSE all share, 25% FTSE 250, 15% Pacific, 10% European, 15% American (S&P500), 5% Japan, 10% emerging markets).

  • 5 IverPotter January 21, 2014, 12:17 pm

    It’s good when you can see diversification happening, even over the very short term. I moved my company personal pension to a SIPP in June and haven’t added new monies since then (new monthly subs are heading into new workplace personal pension) so I can confirm some basic market observations / well known headlines of the past six months. The best performer in my portfolio – ISHARES EURO STOXX SMALL UCITS ETF +19.65%. The worst performer – ISHARES V PLC EM DIVIDEND UCITS ETF USD -9.75%. In the performance space between those two, in descending order is the FTSE 250, property, FTS100, Dev Wld Equities, Govt bonds and Ex-JPN Asian equities.

  • 6 teamdave January 21, 2014, 12:33 pm

    Arrgghh.. Just checked my holdings. Would appear I’m a fashion victim.

  • 7 vanguardfan January 21, 2014, 12:34 pm

    another good post – it might have been even better as a pop-psych quiz!
    I have learnt that although I believe myself to be a Silver Fox, my portfolio reveals a mix of Risk Taker and Fashion Victim… a timely reminder of the gap between rational and emotional and a note to self to set (and stick to) a maximum number of holdings this year!

  • 8 vanguardfan January 21, 2014, 12:35 pm

    argh forgot to press ‘notify of comments’ (please could you look into this so we can sign up without having to make a comment for the sake of it 😉 )

  • 9 JJ January 21, 2014, 1:57 pm

    Hehe excellent article. The more sources reiterating the perfect asset allocation doesn’t exist the better, I stressed about it way too much and after all that have ended up somewhere between the Economist/Young Buck. Which is about right I reckon.

  • 10 PC January 21, 2014, 2:13 pm

    Thanks for the reassurance that there’s no one right answer to asset allocation, and by extension to re-balancing.

    I like the sound of ‘The Nobel Prize-winning economist’ although in practice I’m much further up the risk scale. Nevertheless, if I were no longer working I think I’d go for the ‘The Safe Choice’

  • 11 Jonny January 21, 2014, 3:06 pm

    I’ve just finished moving a lump sum from a (perhaps 😉 ) overly aggressive 100% LifeStrategy allocation to an 80% LifeStrategy, as I’d started to feel nervous. Having read this article, it seems I’m now in the young buck category for this part of my portfolio, and I’m wondering if I should have moved to the 60% LifeStrategy fund.

    My dilemma is I have a preferred time horizon of 5 years (but in no way fixed or absolute). I plan to use the money when my mortgage fix expires (in 5 years time), as a lump sum overpayment. I nearly used it as a lump sum overpayment before re-mortgaging, but decided to let equities “do their thing”, to hopefully provide a better return (than overpaying the mortgage would) – perhaps in a similar way to how the Accumulator became mortgage free – without actually paying off his mortgage (though I took this decision before the article was published).

    If equities do take a dive, I don’t need the money at any particular point in time – so can leave them until they (hopefully) do recover. The aim (hope) is to get back at least what I put in (with hopefully some more – that’s why we do it right?).

    Having only been an investor for 3 years, I’ve seen a few dips, but no real “crash”, so am unsure how I’d handle it. The rules say not to react/sell, so I hope that’s what I’d do. I have no immediate need for this money (it is after all earmarked as a mortgage overpayment) – so expect I’d just leave it until it recovered.

    It’s possible a strange set of circumstances, but wondering if anyone has any comments.

  • 12 Ignorant January 21, 2014, 4:05 pm

    I have just realized I am hopelessly underexposed to zombie repellant, how can I best invest?

  • 13 Neverland January 21, 2014, 4:44 pm

    Nice to see equity allocations that acknowledge that most business activity takes place the other side of the channel

    At the risk of nit-picking why is the Silvr Fox portfolio so heavy is UK equities when the others aren’t?

    I would also question the commercal property allocations in the portfolios as most older investors are already overweight in UK residential property by virtue of owning a house (often a leveraged exposure too)

  • 14 dearieme January 21, 2014, 5:59 pm

    Re Harry Browne: he wrote before linkers were available. Might it be sensible to replace his 25% gold by, say, 10% gold and 15% linkers?

    I expect that I might end up buying some higher-risk equities soon: AIM shares (partly for the IHT advantage) and VCTs (to reduce a one-off income tax exposure). What could I hold as lower-risk but equity-like, for balance? Convertibles, maybe?

  • 15 Ben January 21, 2014, 6:06 pm

    Hi Everyone,

    If you agree that all bubbles burst, and that sovereign bonds are in a bubble, we have double digit interest rates and stagflation to look forward to when the biggest bubble in financial history goes pop.

    I cannot see how a conventional portfolio of equities, bonds and leveraged real estate will do well in such an environment.

    All 3 asset classes tanked in real terms during the stagflationary 1970’s.
    Will this time be different?

    I’m guessing most of the forum members do not see such a bubble either existing or popping in the foreseeable future.

  • 16 The Investor January 21, 2014, 6:33 pm

    @Ben — We just had that discussion on the gold post, I’d rather we didn’t repeat it here and bog down this thread, which is not about market timing asset price moves.

    Interested readers are advised to look back a couple of weeks to the “GoldenFreude” post and continue the conversation there as desired. Cheers!

  • 17 An Admirer January 21, 2014, 6:55 pm

    Could you (pretty please with a cherry-on-top) do a round up of (cheap/passive) multi-asset funds?

    There are a few around now e.g.

    Vanguard LifeStrategy
    HSBC World Index Portfolio
    Architas Passive (with silly/nonsense names)
    L&G Multi-Index (with silly/nonsense numbers but closest I have found to being a true LS competitor in price terms).
    Blackrock Concensus

    Probably a few more I’ve missed… strangely no ETF’s though.

    These are all really simply one-stop-shop (largely) no-nonsense diversified bundles of joy. Unless you have lots (100k+++) I don’t see why you’d not use one/some of these for your entire portfolio (I do).

    Particularly for beginners. Dull, boring, low volatility, easy to understand, modest returns and some of them reasonably priced too. Choose your bond/equity split and off you go.

    You’re not going to get rich quick but you won’t get poor quick either and neither will you be punished for not paying attention.

  • 18 The Accumulator January 21, 2014, 8:21 pm

    @ Ignorant – watch out for the ZOMBIE ETF coming to a stock exchange near you, soon.

    @ Frugal Sage – Bunker fortifications 😉 I wonder if that’s The Survivalist crossed with Fashion Victim?

    @ Neverland – Silver Fox is heavy in UK equities because he doesn’t want to be exposed to currency risk at a ripe old age. Property exposure is commercial so different from owning a house.

    @ Admirer – Have been meaning to do that post for a while. Thanks for the prompt!

    @ All – good to see so many fashion victims coming out of the closet 😉

    @ Jonny – your situation bears many similarities to my own. You’re taking a substantial risk, no doubt about it. The best you can do is a thought experiment to try and simulate how you’d feel if it all went wrong. Write down the figure earmarked to pay your mortgage in 5 years time. Half it. How would you feel if that’s the amount you had in 1 month’s time? How would you feel if it was 10 years before that amount recovered to your original value? Would you hate yourself? Would you feel stupid? Sick? If so, repeat again only this time you lost 25%. Then 20%, 10% etc. What can you live with if you hit a major down turn but the time frame for recovery is 10 years or more? Bearing in mind that a 50%+ drop in the stock market is conceivable at any time, and recovery can take 20+ years, dampen your portfolio with bonds or cash until you’ve reached the point you’re comfortable with. Also, do you have a strategy for tapering down as your time horizon shrinks? Paring back 20% a year in equities until you reach pay dirt? At least that way you won’t be dramatically exposed in year 5 just as you’re about to hit the tape.

  • 19 Smith January 21, 2014, 9:09 pm

    @An Admirer
    Here are two passive multi-asset ETFs available in Europe :
    – db x-trackers Portfolio Total Return Index UCITS ETF
    (LU0397221945, available on the Xetra exchange)
    Synthetic, Accumulation
    – Think Total Market UCITS ETF Neutral
    (NL0009272772, available on Euronext)
    Physical, Distribution.

  • 20 Alex January 21, 2014, 10:00 pm

    @An Admirer (Comment 17):

    A multi-asset ETF listed in London: db X-trackers SCM Multi Asset UCITS ETF (XS7M); TER: 0.89 %.

  • 21 Brick By Brick Investing | Marvin January 21, 2014, 11:00 pm

    Great article and so true. I always get questions about this topic and it truly depends on your situation, knowledge, and amount of risk you’re willing to take.

  • 22 Jonny January 22, 2014, 12:04 am

    @ Accumulator

    That’s a really interesting (and helpful) way of looking at it.

    To check I understand, your saying take value of investment vehicle now, then decide a £ amount (of its entire value) that I can handle seeing the value of drop by 50%

    if I can handle 50% drop (of entire lump sum) for 10 (or even 20) years – go 100% equity
    if I can only handle 25% drop – go 50% equity
    if I can only handle 10% drop – go 20% equity

    Here we’re assuming the UK fixed income securities (gilts, corporate bonds and index linked bonds) part of a LifeStrategy funds are “safe” (or at least much less volatile).

    Re. having a strategy for tapering down: not really, but I should.

    The issue is that this is/was a lump sum with no new money being added (related to the mortgage overpayment). Tapering down therefore involves switching existing funds into another LifeStrategy fund (and paying yet another preset dilution levy).

    Whilst learning to invest, most material seemed to drum down not to churn funds / trade too often, so I’ve been really put off incurring any costs switching funds – and so have (irrationally) tried to avoid doing this at all costs – Now I’m typing it out, my strategy seems really daft (keeping a higher lever of risk to avoid a 0.16-0.18% charge). A 0.16-0.18% dilution levy once per year may not be so bad for the extra piece of mind*

    Thinking out loud, maybe new money added (to be invested) for other longer term savings could be used to purchase lower equity LifeStrategy funds, and “swapped” (in my spreadsheet) for the higher risk ones currently earmarked for the mortgage overpayment. Or maybe even just 10-20% withdrawals into cash savings (to diversify, and reduce equity exposure). Lots to think about…

    * though 0.29 AMC + 0.45 platform charges + 0.17% PDL = a depressing 0.91% (…sorry, that’s a different comment thread!)

  • 23 dearieme January 22, 2014, 12:23 am

    The Made Man could be unmade by his lack of diversification. After their Civil War Americans used a rough equivalent of inflation-protected bonds. FDR defaulted on them, with the approval of Congress and the supine acceptance of SCOTUS.

  • 24 Lee January 22, 2014, 3:17 am

    As I was 95% equities I’ve been taking some profits and rebalancing lately towards some corporate bonds. I guess I’m still a rather raffish young buck.

    Just as an immodest aside, my 3D printing shares have actually been doing rather well – +31% on last year, and I would also get some frontier stuff as well if the TER wasn’t so expensive.

  • 25 The Accumulator January 22, 2014, 9:26 am

    @ Jonny – yep, that’s exactly what I was saying and I agree with your conclusions on tapering. I would certainly consider going into cash as an alternative to bonds, but an alternative to a second fund at HL would be a new LifeStrategy fund or even bond ETF e.g. VGOV at another broker.

  • 26 SemiPassive January 22, 2014, 10:24 am

    Just re-jigging according to my new 100% ETF SIPP strategy thanks to H-Ls changes. Not too far from Mr Average, aiming for about 65% in equities with a UK bias (equities split across 4 ETFs, UK, World, World High Dividend and Emerging Markets).
    Chosen a 1-5 year Corporate Bond ETF rather than conventional gilts, but also will have a chunky amount in an index linked gilt ETF.

    No commercial property yet though. And I’m struggling to decide whether I should bother to hold 5% in a physical gold or gold miners ETF, or just hold a few % in cash instead – perhaps for redeploying if there is a mini-crash.
    Maybe buy some 1 oz Britannias or sovereigns instead, at least they can be physically stroked while uttering “my precious”….without storage and SIPP holding charges.

    Separately I’m tweaking a modest minimum faff S&S ISA that will just hold a FTSE100 tracker and index-linked gilt tracker ETFs (something like a 70/30 split) and will maintain a similar amount in Cash ISAs.

  • 27 BeatTheSeasons January 22, 2014, 11:01 am

    I do find it strange that none of these portfolios feature property in any significant way, considering it’s one of the main 4 asset classes, and you could argue it has been the main bedrock of wealth for hundreds of years.

    It also gives you more scope to ‘beat the market’ as you can predict which areas and types of property are going to appreciate in value more reliably than you can pick the right stocks. And it helps that the prices take a few years to catch up with new information such as a railway station being built, whereas equity price escalate within minutes of good news being announced.

    If you have a property in your portfolio then it also lets you borrow to invest. A small amount of debt relative to your overall portfolio enables you to produce cash ‘out of thin air’ when opportunities present themselves. It should also magnify your total returns over the longer term. The fact that the debt is secured against a property is neither here nor there, except it brings the advantage that noone is going to make a call on your capital and force you to sell if the value of your assets temporarily falls.

    I sometimes wonder whether things would be different if residential property was easier to buy through online trading accounts. Weren’t the last government briefly going to allow Buy-to-Let in SIPPs? Would we see far more promotion of property investments and come to see it as more mainstream than we do now?

    As it is, I regularly hear the (biased) managed fund industry make Neverland’s point about avoiding property because you already have exposure to the asset class via your own home. But is that really true? Owning a paid for house simply de-risks your need for a stream of income to pay rent. Changes in its value are really quite irrelevant to your financial health. You only get a ‘real’ exposure once you investment in additional property.

  • 28 Nathan January 22, 2014, 12:36 pm

    I went the HBPP way but currently hate all the asset classes. So psychologically the Survivalist is looking good for me but I’d need more exposure to leather chaps and Bitcoins.

    For me it was all about my (lack of ) tolerance for volatility, when 2008 came to my ~60:40 I was found wanting or more precisely hyperventilating.

  • 29 Grand January 22, 2014, 2:15 pm

    Currently I am a Young buck, but will soon be moving into the Risk Taker category at the end of the month once I purchase the Ishares Property ETF.

    I was wondering as it goes… do you readers have portfolios for different seasons? One for say 20 years time, one for the kids, so on and so forth, or do you just lump everything together and call that your portfolio? Also how is it that only one portfolio “The Man For All Seasons” contains cash. Do you not include cash as an item in your portfolio?


  • 30 BeatTheSeasons January 22, 2014, 2:19 pm

    @ Grand

    I have a different asset allocation in my SIPP because I can’t access it until age 55 (or later if the government changes the rules again). So I decided to invest in assets with a longer term outlook. I also bought less bonds because I have a small final salary pension pot which ought to be a good substitute for bonds when I reach retirement age.

  • 31 dearieme January 22, 2014, 3:50 pm

    @Grand: we used to do liability-matching, for example for university costs. Now our biggest likely liability is “Care”, of unknown incidence, size and timing. Another possibility is our defined benefit pensions going belly-up and our consequently losing, at the least, most of our inflation-protection.

    We have no idea how to plan for such uncertainty. Harry Browne?

  • 32 The Accumulator January 22, 2014, 6:48 pm

    @ Grand – Different portfolios for different objectives.

    You can split fixed income into a cash component.

  • 33 Grand January 25, 2014, 1:35 am

    @ TA, maybe that is a future post… building blocks of a passive portfolio for the typical objectives we in the western world strive for.


  • 34 Emma January 25, 2014, 6:23 pm

    @ TA – great article as ever, thanks!

    In terms of having different portfolios for different objectives, how do you manage those so that you don’t get the asset allocations mixed up. Do you have each separate portfolio with a different broker? If not, how can it be done?

    @ Grand – I would also second that as a post that I would find very useful – great suggestion!

  • 35 PaulM January 26, 2014, 1:09 am

    The problem with conventional asset allocations is that govt bonds seem to be in a different place from former times.

    I just reached the place in life when I should swap many of my shares for gilts. I sold a lot of the higher risk stuff and then realised that I’d be buying into something that is guaranteed to lose price in the not distant future.

    QE has done something to this asset class which probably has not happened before.

  • 36 The Accumulator January 26, 2014, 8:43 am

    @ Emma and Grand – I’ll look at doing something like that in the future. The building blocks – by which I mean the asset classes – are always the same. It’s the size of the number you need, the time you have to reach the goal and the importance of that goal that shifts. In which case, this piece will give you some ideas on adapting your equity:bond split to different circumstances: http://monevator.com/asset-allocation-strategy-rules-of-thumb/

    Emma, I’d agree that splitting your assets by broker would be a good way of tracking different objectives. The alternative is a spreadsheet but it wouldn’t be as intuitive from a mental accounting p-o-v.

    @ Paul M – while it seems likely that bonds will suffer some losses it’s not guaranteed. All individual asset classes have historically experienced long periods of negative real returns which is why diversification is your best friend. The problem is, if you stay in equities you may well have a large amount of value wiped out by a crash. Go to cash for a long period and you’ll probably struggle to keep up with inflation. One solution is to buy short-dated bonds or to match the duration of the bonds you buy to your need for the cash, or to annuitise. But yes, I agree the situation is far from ideal.

  • 37 The Investor January 26, 2014, 10:36 am

    @Paul — This is one of the toughest conundrums in investing right now, you have my sympathy.

    It is tough because we don’t know the future. If there’s a hint of deflation in it then bonds will prove invaluable, even from these levels. Ditto if any sort of near term major stock market crash (30% say).

    Otherwise probably better in cash. In the old days the expected return from bonds compensated you more for the (smaller) risks but as you allude in real terms there is not much return expected from here at all!

    A couple of weeks ago the ten year gilt had a gross redemption yield of just over 3%. If the bank of England does its job, that should give you a small positive real return. However the bond is trading over par, so you will see a capital loss. (This is factored into the gross redemption yield).

    So in in that sense nominal losses of *capital* are guaranteed, but whether they are real terms losses or not depends on inflation and deflation.

    Personally if I was near retiring now I would have a heavier than usually advised equity allocation, lots of cash, as The Accumulator says a good helping of shorter duration bonds for now, but I would probably also already bite the bullet and buy some longer duration ones too, just in case of deflation.

    Diversify, in other words! 🙂

    Also worth taking into account what any extra income sources in retirement will consist of. E.g. state pension, defined benefits pensions, etc.

    All just pointers for thoughts, naturally you will do your own research. 🙂

  • 38 SteveT February 16, 2015, 9:16 pm

    I have been following the site for a while now having realised some years ago that I am unable to trade/do better than the market so accept that passive is the way to go and have put a good percentage of my funds into Vanguard LifeStrategy 60/40 funds (being v close to retirement) which also reflect the asset allocation model best suited to me (I think). I have also been reading the book by Lars Kroijer (investing demystified – how to avoid sleepless nights) which basically says load up on minimal risk (gov bonds)and add some diversified funds on top which seems to coincide with my view on Vanguard Lifestrategy funds.

    Thinking it cant be as easy as just buy one lifetracker fund I thought I would add some VGOV (vanguard UK govmnt bond fund as suggested in the book).. but this seems like the total opposite of minimal risk as it is up and down like a yoyo. Does anyone have thoughts on what is a suitable minimal risk asset (other than cash) for a diversified portfolio? is vgov the way to go and i just need to stick with it? (I obviously do not quite fully understand the way bonds work and realise I need to inform myself more on this)

  • 39 The Accumulator February 17, 2015, 8:58 pm

    Hi Steve, VGOV contains quite a lot of long-term gilts which increase its volatility in comparison to shorter-term gilts.

    It’s factsheet reveals an average duration of 10 which basically means for every 1% change in interest rates then the fund will increase/decrease by 10% in value.

    Whereas a shorter-term product like the SPDR Barclays 1-5 Year Gilt ETF has an average duration of 3. It will yo-yo by 3% in response to a 1% shift in interest rates.

    So it’s less volatile, so you’re taking on less risk but giving up some return in exchange.

  • 40 Chris October 2, 2021, 9:32 pm

    Hi – I think this is a great article. Just wondered if you would still consider it “up-to-date” or if you feel it may need tweaking slightly in any way in 2021?

  • 41 Mike November 2, 2021, 1:40 pm

    I second that we could do with an up to date version and a bit of expansion for the ‘Made Man’ scenario with a good selection of ‘safe’ ish investment for those wanting to protect their stash.

  • 42 The Accumulator November 2, 2021, 2:42 pm

    Thanks both. I’ll put this on the list.

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