No. of Recommendations: 3
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:

He suggests a very different approach and I would like feedback on his ideas and on the use of the 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 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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