IRA asset allocation in 2012 - getting started


Somebody asked me recently (1Q12) for basic advice on funding an IRA. This got me looking again at investment choices. Schwab has added Exchange Traded Funds (ETF) under their brand. These funds are low expense, and as a bonus they trade for free in the Schwab universe.

Additionally, I realize that my own tastes in investing have evolved into more and more complexity with some level of 'engagement'. I listen to market news at minimum 3-4 times a week (usually a couple times daily), and Iím ready to jump in and make some trades if oil is up, gold is down, or the market is moving. This is definitely not for everybody.

What follows is a 'slimmed down' version of the full on diversification strategy. Instead of a "four corners of the style box" bent, it relies on "blends", so it's more of a "top and bottom of style box" way of looking at things. Iíve also dropped the commodities for simplicity's sake.

Basic Strategy Diversification - IRA accounts (not taxable)
(strategy for 'entry level IRA' accounts, no bonds nor cash)
50% Domestic Stock Funds
50% International Stock Funds

 

 

% Category Fund Name (ticker) Notes
22% U.S. Large Cap Stocks Blend Schwab U.S. Large-Cap ETF (SCHX) 0.08% expense ratio; free trades at Schwab.
22% U.S. Small Cap Stocks Blend Schwab U.S. Small-Cap ETF (SCHA) 0.13% expense ratio; free trades at Schwab.
6% U.S. Real Estate Investment Trust Schwab U.S. REIT ETF (SCHH) 0.13% expense ratio; free trades at Schwab.
20% Foreign Large Cap Blend Schwab International Equity ETF (SCHF) 0.13% expense ratio; free trades at Schwab.
20% Foreign Small Cap Blend Schwab International Small-Cap Equity ETF (SCHC) 0.35% expense ratio; free trades at Schwab.
10% Emerging Markets Schwab Emerging Markets ETF (SCHE) 0.25% expense ratio; free trades at Schwab.
100.00% total weighted expense ratio of 0.175%

 

The result is very low expense with pretty decent diversification. It sort of splits the difference between a ďlife cycle fundĒ and a full on fifteen fund active trader portfolio.

Note that I have skipped Bonds here. My portfolios tend towards the aggressive most of the time, and at this writing, bond funds can only go sideways or down.


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