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Best Portfolio Asset Allocation

February 7, 2013

The best portfolio asset allocation takes planning, should be simple and will change over time. Treat your portfolio as you would a child as outlined on my website The most important thing to me is capital preservation. If you diversify your asset classes and are thoughtful about how much capital you allocate to each class, you stand a very good chance of consistent profits and when economic challenges occur, capital preservation.

I use what I call the “Unit System” where each dollar equals 1 (one) unit. Divide the starting capital by 100 which makes each unit equal to 1%. The $ value per unit will fluctuate, but with the readjusting nature of the strategy, you will always have 100 units and therefore can never run out of money.

Division of Units Per Asset Class: Allocation will fluctuate as one ages and as re balancing occurs. More about that another time.

1. Growth Stocks:

40 Units

4-6 units per position = 6-10 positions

(Note: I sometimes have Growth stocks that I love and will invest units from Class 2 and buy the Bonds or Preferred Shares of Class 1 growth stocks)

2. Fixed Income: (Bonds, Debentures, Preferreds, REIT’s, Gold) and Core Holdings: (Large cap dividend companies)

20 Units

4-6 units per position = 3-5 positions

3. Foreign Equities: ETF’s and diversify

15 Units

4-6 units per position = 2-4 positions

4. Commodities: ETF’s and diversify

10 Units

3-5 units per position = 2-3 positions

5. Hedge: Options, Inverse ETF’s.

10 Units

2-3 units per position = 3-5 positions

6. Junior and Speculative Equities, Warrants:

5 Units

1 (one) unit per position = 5 positions maximum.

The range of positions in this portfolio could be 21-32 however; rarely do I hold more than 20 positions.

The main point is that you want to maximize exposure in areas of safety (1, 2 and 3 = 75% of your portfolio) and have exposure (but minimize potential damage) in the riskier areas of the market. (4, 5 and 6)

The best portfolio asset allocation takes a plan, should be simple and will change over time. I’ll talk more in the future about how to manage positions for maximum gain and protection.

Greg Hall


From → Personal Finance

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