Hello Fools.

My wife and I are expecting our first child, and I've suddenly become more serious about retirement planning. Specifically, how to effectively diversify our investments.

We've been saving for a while, but I had never given much thought to diversification. Recently I've been doing some reading on asset allocation and MPT, and I've got some questions for you veterans.

Not necessarily looking for answers, as there may not be any. Any thoughts, links to additional resources, etc are appreciated.

1- In my readings on MPT, and specifically around using correlation to diversify your assets, I've encountered 2 big pieces of criticism: 1) In an economic crisis, the correlation of all asset classes moves to 1 (and they all go down to the drain). 2) Many correlation models use a standard distribution, while the distribution of investment returns is typically anything buy standard.

How do you all address the above 2 issues when determining your asset mix?

2- In terms of asset classes, it seems like there are a million levels of classification that one could use. A true newbie could just use "stocks, bonds, RE and cash" as their 4 classes. Then you get into "Large cap, small cap, etc" at the next level, and this can continue on and on identifying more minute levels of difference (e.g. - TMF touts 12 different asset classes in it's Rule Your Retirement program)

What's the "right" level to draw the line among asset classes?

Again, I know there may not be answers. Any thoughts are appreciated.

-CH