I have been struggling with Asset Allocation issues for about a year. While a fixed percentage in various classes has done fairly well for me over the last 15 years, my approaching retirement is causing me to reconsider the allocation plans.I recently read several articles in the AAII Journal by J. Cloonan. This is a Url to a copy of the last article: http://tinyurl.com/kzisHe suggests a very different approach and I would like feedback on his ideas and on the use of the www.riskgrades.com website for completing the analysis.In his early articles, he suggested that the asset allocation model I have used is not the best approach. I have used classes of assets with historical returns, std deviations, and covariances by class; then tested portfolios by fitting them into the asset classes. A lot of the diversification comes from spreading a portion of the portfolio in each of the asset classes. A broad mix seems necessary. I call this the boxing model.I think Cloonan suggests fitting the portfolio directly into the www.riskgrades.com website. This allows developing diversification at a lower level of detail and in my case results in a much simpler mix than I had been using. It also shows that the asset mix I now have is more conservative than I desire. Some of the specific differences include:1. The boxing model wants a mix including foreign bonds and stocks. The direct model achieves adequate diversification without foreign investments.2. The boxing models works best with a balanced mix of large and small, and value and growth equities. The direct model does better with a high proportion of small-cap, value equities.3. My boxing model suggests I need to lower the equity mix below 50%. The direct model shows that a 60% mix has reasonable risk (for me).In general, the direct model and Cloonan's commentary feels right to me. I can dump the foreign stuff I never really liked and can keep a high mix of small cap which have been my favorites.I have studied this stuff a lot and still feel like a complete novice. What do you folks think of Cloonan's article and the RiskGrades website?
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