My Personal Investment Pocket Allocation

Many people often ask me what my own investment allocation is across the various asset classes. Naturally, they are interested in whether or not I personally “practice what I preach.” So, I thought I would share with you how I have adjusted my portfolio at the beginning of January for 2014.

First off, regarding US equities, as the market rose some 30% in 2013, I ended up being overweight US equities at 42 points. So, I have reduced the portion of my portfolio by about 9 points to now be at approximately 33% of my total investment pocket. This is an unusually large change for me on an annual basis; however, the rise was also quite unusual. Also, within this category I increased my weighting in small/medium cap value stocks and decreased the large cap growth stocks. It is majority in a variety of index funds and customized to my profile index funds.

Regarding Developed country equities exposure, I also reduced by 2 points this exposure as both Europe and Japan had risen to be above the proportion that I felt comfortable. This category is now 7%. It is split 50/50 between index/ETFs and active fund managers.
Re the Growth countries and other EM exposure, it is now at 15% of the total as it did not move much in 2013. I plan throughout the year to follow my “trickle investing” approach and slowly increase my equity exposure here, especially if these markets decline. Thus, at the end of this month, I may begin to invest so that by the end of the year, I will have increased my proportion about 2 points. Most of the money will remain in the Growth countries with only a small portion in the Frontier countries. And that exposure would come indirectly through a combination of active managers and a few multi country index/ETFs.

As to my Fixed Income allocation, in the US, it has remained modest at 24% due to the continued low interest rates. Given the asynchronous nature of a near zero return but with interest rate risk on the fixed rate bonds, I have been unwilling to increase this exposure. I do keep some exposure however, as I plan to hold the bonds until maturity, so all I lose is opportunity interest income if rates move up. Also, I keep the maturities on the short to intermediate duration, i.e. mostly in the 1-5 year range for now. Even though the rates are unattractive, from a diversification standpoint, still keeping some exposure to bonds is important for me in case for some reason deflation comes into play. The managers are mostly low cost active as well as I invest directly into individual bonds.

As to the bond allocation to International Developed and Growth countries, in total it is at 9% and is mostly actively managed by low cost managers. It is focused only in a few places in Europe as well as the higher rated Growth countries so as to keep credit and currency risk to the weaker countries at a minimum. There is no exposure to bonds in Frontier countries or to those that have low debt service ability relative to reserves and total earnings levels. Perhaps if I was an active investor in my 40s or early 50s, I might play the trading game in the deep discount EM bonds arena at certain times this coming year; however, at this point in my life, I don’t like my major exposures to have so much “octane”.

Regarding Real Estate Investment Trusts I remain exposed at roughly 5% with a 50/50 split between the US and a broad based international allocation. Here I do rely on the higher quality low cost REIT funds managers to make the weighting and rotation decisions about REITs around the world, both by category (commercial, industrial, residential) and country. Since I also own real estate directly, I do not need in my investment portfolio to be over weighted in real estate funds. However, for those that do not own real estate, it is advisable to be full weighted in real estate related public financial products such as REIT funds.
I have a broad based mix in my commodities allocation across oil and gas, precious metals timber, etc. This portion also includes a small portion in related commodity oriented stocks and a few limited partnerships. I use both index and active managers. The commodities category in total, it represents only about 2% of the investment pocket, which is a little low. Back in 2011 and 2012, it was over 5% due to the run up in prices. However, it was reduced in that period for rebalancing purposes.

Lastly, in the Alternatives category, depending on what areas are included, I am holding about a 5% direct exposure. This exposure covers direct private investments into early stage companies that I actively manage totaling about 3% as well as direct currency exposure of 2% spread out evenly across Euros, Sterling, Az $, Sing $, Renminbi, and Yen . It is low on the direct currencies side as I do have indirect currency exposure via those funds that invest in foreign stocks and locally denominated bonds without full hedging. I do not personally operate a Trading Pocket and I keep my exposure in this overall category quite low and trade very infrequently.


Asset Class Age Range: 55-71 My Personal Allocation
Equities 45-65% 55%
Home Country 20-30% 33%
Developed 8-12% 7%
Growth 8-18% 12%
Frontier 3-8% 3%
Fixed Income 20-40% 33%
U.S./Developed 13-30% 24%
Growth 7-12% 9%
Frontier 0-3% 0
Real Assets 8-15% 7%
REIT-U.S. 4-10% 3%
REIT-Intl. 2-5% 2%
Commodities 2-5% 2%
Alternatives 0-5% 5%

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