Aug 26
Asset Allocation Testimony
The following portfolio information was sent to me by someone I’ve corresponded with over a number of years. The following portfolio is a testimony to the benefits of following an asset allocation policy. - Lowell Herr
History of a Passive Portfolio
This portfolio is funded by profits derived from a part-time publishing business with three principals. The pension plan is a money purchase plan that uses Vanguard Fiduciary as the Trustee. Over the years it has varied between quarterly and annual contributions. Currently it receives $375 per quarter and is distributed in such way as to try to maintain balance in the various allocations. When I first started corresponding with Lowell (2001?) we had met on the NAIC e-mail list where Lowell was trying to interest people in the AA vs. stock selection debate. I decided this small portfolio would be a good test vehicle and in 1/2002 redistributed the existing fund allocations, Asset Allocation Fund, Health Care Fund and Growth Fund into Vanguard’s Large Value, Large Growth, Mid-cap Blend, Small-cap Value, Small-cap Growth, REIT, International Total Stock and Short Term Government Bond Index funds. The table below shows the allocations at the end of each year.
| Asset | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | Current |
| LV | 14.5% | 14.7% | 9.6% | 19.5% | 20.1% | 18.7% | 18.5% |
| LG | 8.1% | 9.4% | 4.1% | 9.8% | 9.3% | 9.8% | 9.8% |
| Mid-Cap Blend | 12.5% | 15.3% | 21.9% | 20.6% | 7.5% | ||
| MV | 11.8% | 10.5% | 10.3% | ||||
| MG | 9.6% | 10.8% | |||||
| SV | 13.8% | 15.8% | 15.9% | 13.4% | 13.7% | 12.4% | 13.4% |
| SG | 7.0% | 6.5% | 16.6% | 5.8% | 5.6% | 5.7% | 5.8% |
| Short Term Bonds | 17.6% | 11.6% | |||||
| REITs | 11.6% | 10.2% | 16.3% | 9.8% | 10.7% | 8.9% | 9.7% |
| International | 14.3% | 16.1% | 15.2% | 14.2% | 14.3% | 15.3% | 14.9% |
| Emerging Markets | 6.5% | 6.6% | 8.6% | 6.2% | |||
| Total $ | $12,156 | $18,834 | $26,626 | $31,071 | $39,097 | $41,994 | $38,616 |
My newest target allocations goals are LV – 14%, LG – 7%, MV – 14%, MG – 7%, SV – 14%, SG – 7%, Inter – 18%, Emerge – 9%, REIT 10%. The mid-cap has evolved because when I began, Vanguard did not offer separate value and growth funds in this cap category. As you can see, 2008 has hit this portfolio as hard as others. Lowell convinced me not to hold a bond allocation after discussing the concept of a virtual allocation behind SS benefits and any other defined benefit pension income.
Current IRR 8.8%, S&P 500 4.1%
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