How to allocate your investments?

 We use the following process to discover a clients' risk tolerance to determine your investment allocation:


Here is how you keep your investment allocation simple:


My first question to you is, "what is the most significant annual investment loss you are willing to tolerate to get the best returns?

I can tolerate losing _________%     Percent of % allocated to stocks invest

35%                            80%

30%                            70%

25%                            60%

20%                            50%

15%                            40%

10%                            30%

5%                              20%

0%                              10%


You can fine-tune your allocation by determining how many years until you want to spend your money. For example, my time horizon for spending my retirement is ten-years. As a rule, I use a factor of 5 times the years I want to access these funds. In my case, five times 10 equals 50. I should not exceed 50% allocation to stocks. I fine-tune my share a little higher than 60% because I can tolerate a loss of at least 25%.


Once you establish your stock allocation, you then need to decide which asset classes you want investing. Asset class selection is determined by how much complexity you can tolerate. For example, I invest in four asset classes:

  • U.S. large stocks (Vanguard Dividend Appreciation Index Fund)

  • U.S. small stocks (Vanguard Small-Cap Index Fund)

  • Foreign Large stocks (Vanguard International Dividend Index Fund)

  • U.S. short-term bonds (Vanguard Short-Term Government Index Fund)



Determining asset class allocation can be as complicated or simple as you want. I try to keep my asset class picks very simple. As I mentioned in my previous blog, I use Vanguard and Dimensional Funds as my two leading index fund families. If you need help in determining your allocation and asset class selection, please contact me at It is free. No strings attached. It does not matter if it is your 401k account, IRA, or your private investment account.

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