No. of Recommendations: 2
25% Domestic Large
30% Domestic Small
5% Bonds/Money market
10% Foreign Large
20% Foreign Small
10% Emerging Markets


To me the simplest allocation would be a total market index and money market fund. Or if you're really set on it, have 3 funds, total market index, international market index, and money market fund.

That is, you have 6 different funds. That is alot of additional fees that over time add up. IMHO, too much emphasis is placed on foreign vs. domestic. Almost any large company has an international presence. Also, I would not hold a bond fund, I would go strictly money market for cash/income portion.

I diasgree on several counts

1) If you invest in Vanguard type index funds, if you are above the minimums, which for most IRAs are 500/fund, you pay no per year fee for being in the fund if your total account with them is 10K or more.

2) You pay a fee for the mutual fund based upon your assets in the fund. If you pay 0.18% fee, typical of Vanguard, that is based upon the value in the fund. If you have five funds, you pay ONLY on the value in the fund. Thus, you pay absolutely no more for having more index type funds

3) Bernstein and many others recommend 5 to 7 asset categories (I recommend you read The Four Pillars of Investing, by Bernstein). You need to diversify both domestically and internationally, across value and various cap funds. They perform differently at various times in the market cycles. You reduce volatility.

4) The US stock market is well under 40% of the world capitalization (25%?). Thus, owning US stocks,even though many are multi-nationals, still ties you to companies doing a large percentage of their business in the US, and ALSO subject to the fate of the dollar.

Owning stocks overseas, in foreign currency denominations (EUROS, for example), give you dollar/euro change protection, and give you exposure to companies doing much of their business OUTSIDE the US.

5) A money market fund should hold your emergency fund (and not be in an IRA), and not much else..use it to park short term money. With MMF funds paying 0.8% interest, you are losing 2 percent a year if inflation is 3%, hardly a recommendation for doing well over time. Guaranteed loss of a couple percent per year.

Any cash should be in CDs (now paying about 4.3%), TIPS (treasury protected inflation securities) or corporate (short term) bond funds or conventional bond funds. YOu might wish to consider REITS or GNMAs as well for part of your cash position.

Both Roger C. Gibson(Asset Allocation 2001) and William Bernstein (2003) cover this well.

I think the original poster is right on target, other than considering holding at least 20% in NON equities (bonds, bond funds, CDs, TIPS).

FOr those not wishing to spend more than 10 minutes a year watching their portfolio, and rebalancing, and still doing well, I suggest the Couch Potato portfolio at . IT has done remarkably well, and takes 10 minutes a year to manage.

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