Asset Allocation

Sample Asset Allocations

Pulling it all together

Now that you understand how assets work and the risks involved in each, you are ready to create an asset allocation plan for you. Once you have established a plan and allocated your assets to match it, make sure you rebalance annually and slowly move towards a more conservative portfolio to secure your economic growth. The following samples show you what could be done, although your actual allocation and asset classes will vary depending on your goals and needs.

Sample Portfolios

Core Four Portfolio

Overview: The Core Four portfolio by Rick Ferri (author of All About Asset Allocation and All About Index Funds) focuses on 4 Vanguard funds as the basis of the portfolio. These 4 funds drive the primary return, but the user is encouraged to tweak the portfolio with small percentages of other funds.

Composition: The Core Four portfolio is composed of

  • Vanguard Total Stock Market Index Fund VTSMX
  • Vanguard FTSE All-World ex-US Index Fund VFWIX
  • Vanguard REIT Index Fund Investor Shares VGSIX
  • Vanguard Total Bond Market Index Fund VBMFX

Allocation: The Core Four Portfolio focuses on the Total Stock Market Index, International All-World excluding US, and REIT index as the equity portion of the portfolio. The remaining amount is devoted to the Total Bond Market Index for the bond allocation. The actual percentages of equities to bonds is left up to the investor, but typically adheres to the 100 to 120 minus your age as the allocation amount for equities and the remainder in bonds.

Sample Core Four Portfolio A sample portfolio following the Core Four model.

Sample Allocation
60% Equities : 40% Bonds
  • 36% VTSMX
  • 18% VFWIX
  • 06% VGSIX
  • 40% VBMFX

"All About Asset Allocation goes beyond sound-bite financial columns and TV programs to explain asset allocation in terms that anyone can under- stand. Using a concise style, it features straight- forward explanations of asset allocation, a review of the asset allocation process, and guidelines for implementing strategies and programs."


Read more about All About Asset Allocation on Amazon.

Coffeehouse Portfolio

Overview: Developed by Bill Schultheis (author of The Coffeehouse Investor), the Coffeehouse Portfolio relies on diversified index funds to protect against any market condition while keeping maintenance to a minimum.

Composition: While the Coffeehouse Portfolio could be composed from any equivalent index fund or ETF, here is the portfolio breakdown using Vanguard Index Funds.

  • Total Bond Market Index VBMFX
  • S&P 500 Index Fund VFINX
  • Large Cap Value Index Fund VIVAX
  • Small Cap Index NAESX
  • Small Cap Value Index VISVX
  • Total International Stock Index VGTSX
  • REIT Index VGSIX

Allocation: The Coffeehouse Portfolio focuses on diversification and choosing the right funds more than finding an exact allocation. With only 1 bond fund, the Total Bond Market Index should take up the entire bond allocation chosen. The equity portion can be adjusted to different percentages based on how aggressive you are. Aggressive investors may include more Small and International weight while conservative investors may focus on Large Cap.

Sample Coffeehouse Portfolio A sample portfolio following the Coffeehouse Investor model.

Sample Allocation
60% Equity : 40% Bonds
  • 40% VBMFX
  • 10% VFINX
  • 10% VIVAX
  • 10% NAESX
  • 10% VISVX
  • 10% NGTSX
  • 10% VGSIX

Intelligent Asset Allocator Portfolio

Overview: William Bernstein (author of The Intelligent Asset Allocator) developed this model portfolio for people looking for a little more risk with potential higher returns than your average allocation. With healthy percentages devoted to Emerging Markets, Precious Metals, and REITs, this portfolio could be more volatile than many investors want.

Composition: The Intelligent Asset Allocator Portfolio uses only Short Term US bonds to compose the bond portion of an allocation while splits up the equity portion across 7 asset classes. Since Bernstein advocates index funds, here are the relevant Vanguard Index Funds.

  • S&P 500 Index Fund VFINX
  • Small Cap Index NAESX
  • REIT Index VGSIX
  • All World Excl. US VFWIX
  • International Explorer Fund VINEX
  • Emerging Markets Stock Index VEIEX
  • Precious Metals and Mining Fund VGPMX
  • Short-Term Bond Index Fund VBISX

Allocation: The Intelligent Asset Allocator Portfolio focuses on diversification and heavier weights to riskier asset classes to increase the likelihood of higher returns. Limiting the bond portion of the portfolio to only short-term bonds adds aggressiveness even in the bond allocation, overlooking long-term or government bonds in hope of higher returns.

Intelligent Asset Allocator Sample A sample Intelligent Asset Allocator Portfolio

Sample Allocation
60% Equity : 40% Bonds
  • 10% VFINX
  • 10% NAESX
  • 10% VGSIX
  • 10% VFWIX
  • 10% VINEX
  • 10% VEIEX
  • 10% VGPMX
  • 30% VBISX

Vanguard Target Retirement Funds

Overview: The Vanguard Group offers several Target Retirement Funds that automatically allocate your funds across an allocation defined by Vanguard. The allocation slowly becomes more conservative as you age, protecting your investment. For many investors, this is the best way to ensure a reasonable allocation without having to worry about rebalancing or constantly changing your assets.

Composition: Each Target Retirement Fund is a "fund of funds." The composition is actually made up of other Vanguard funds in different allocations. While the percentages may be different, each of the Target Funds has a similar collection of funds and assets.

  • Total Stock Market Index VTSMX
  • Total Bond Market Index VBMFX
  • European Stock Index VEURX
  • Pacific Stock Index VPACX
  • Emerging Markets Stock Index VEIEX
  • Inflation-Protected Securities Fund VIPSX
  • Prime Money Market Fund VMMXX

Allocation: The allocations defined by Vanguard aim to meet the needs of the average investor, which may not be what everyone wants. The allocation of each fund may be too conservative or aggressive for certain investors. To better match their risk tolerance, many people chose a Target Retirement fund with a different year attached to it than they actually plan on retiring. Regardless, the funds included are some of the best in the industry and the fact they automatically adjust means many investors can find a complete package in one fund.

TR 2045 Allocation of TR 2045 Fund
  • 72.3% Total Stock Market
  • 10.0% European Stock
  • 9.9% Total Bond Market
  • 4.4% Pacific Stock
  • 3.4% Emerging Markets Stock
TR 2035 Allocation of TR 2035 Fund
  • 72.2% Total Stock Market
  • 9.9% European Stock
  • 9.9% Total Bond Market
  • 4.4% Pacific Stock
  • 3.6% Emerging Markets Stock
TR 2025 Allocation of TR 2025 Fund
  • 63.3% Total Stock Market
  • 8.8% European Stock
  • 20.8% Total Bond Market
  • 3.9% Pacific Stock
  • 3.2% Emerging Markets Stock
TR 2015 Allocation of TR 2015 Fund
  • 51.3% Total Stock Market
  • 7.1% European Stock
  • 35.8% Total Bond Market
  • 3.2% Pacific Stock
  • 2.6% Emerging Markets Stock
TR 2005 Allocation of TR 2005 Fund
  • 35.2% Total Stock Market
  • 4.8% European Stock
  • 41.6% Total Bond Market
  • 2.2% Pacific Stock
  • 1.8% Emerging Markets Stock
  • 1.3% Prime Money Market
  • 13.1% Inflation-Protected Securities Fund
All allocations as of 11/30/2007 based on Vanguard.com


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