After some thought and reading, I have decided on the following asset allocation ratio for my current age and position:
70% Stocks / 30% Bonds
Although since I am only 26, some people say I should be more aggressive, I am being realistic in the amount of volatility that I think I can endure and still stick to my plan. Would you really keep your positions if they dropped 35% in one year? That would mean about $20,000 for me, enough to cause some serious heartburn.
However, I am saving for a house as well, and since I’ll need that money in less than 5 years, I think of it as a separate “basket” of money. I am going to handle it much more conservatively. More on that later, but that will allow me to change the rest of my portfolio to:
80% Stock / 20% Bonds, or more specifically:
40% Large Cap / 20% Mid&Small Cap / 20% International / 20% Bonds
This is very similar to my current 401k Asset Allocation. My Monthly Goal due 12/31 is now complete. I thought about putting some in REITs, but I personally think they are a bit inflated right now, and I will get exposure to Real Estate when I buy a house.
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Bonds? I didn’t have any bonds until I was 36yo. Then I sold them all last year. Before you invest in bonds, ask around. I believe you could get hit hard by rising interest rates. Please, think before doing this.
I am in the same boat as you. I don’t have any bond exposure in my portfolio, but I am worried about the outlook for bonds (especially long-term bonds). My current thinking is to hold the bond portion in a money market fund. Good luck!
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I agree with you Stephen, that bonds will be affected by rising interest rates. However, isn’t that somewhat shown in the current bond pricing? Doesn’t everyone know that interest rates will rise in the future?
I do agree that short-term bonds are the better way to go, they can adjust quickly, and you can simply ride the bonds out to maturity. I also agree that stocks are better in the long run, but I like the 20-30% exposure to bonds in order to smooth out the ride a bit. I am being realistic with my risk appetite. Saying that you are willing to risk a 40% loss in your portfolio when it hasn’t actually happened to you yet is easy. Thanks for the comments!
Did you consider investing in commodities or FOREX at all? I am always amazed how these markets are often completely ignored. These can be great markets especially in an environment of a falling dollar.