My IRA’s Asset Allocation (June 09 Update)

Since I spoke a bit about my Roth IRA, I want to share my asset allocation to give you an idea of how the money is distributed.

What is asset allocation?

Asset allocation is your plan for your investment contributions. Are you going to put it in stocks, mutual funds, bonds, ETFs, etc?

Whatever choice you make, there is a risk involved. Stocks tend to preform well in the long run, but there is the risk of volatility. Bonds offer less risk in volatility but you also tend to get a smaller return.

Why is asset allocation important?

According to Financial Analysts Journal, asset allocation is huge factor in a fund’s variability. A benefit of having the proper asset allocation is to fit your goal of aggressive growth in the long term, stability of your money in the short term (for people retiring soon), or somewhere in between.

If you’re retiring in a few years, don’t keep most of your investments in stock. You should be focused on stability as you’re planning on withdrawing the money and living off of it for a couple of decades.

My Roth IRA’s Asset Allocation

I started setting aside money for retirement when I was 21. Unfortunately when I switched jobs, instead of rolling it over, I foolishly cashed it out. I started again and opened up an IRA.

After learning about the advantages of Roth IRAs, I moved my money into one. Right now, here’s what the asset allocation is:

I currently have my IRA at Sharebuilder. If you’re looking for a place to open up an IRA, here are some places to consider:

• E-Trade (Annual fee and minimum are waived when you sign up for electronic statements)
• Vanguard (Some funds require $3,000 minimum)
• T. Rowe Price
• Charles Schwab ($1,000 minimum is waived if you direct deposit $100/month)
• Zecco( No minimum to open; $30 annual fee)

I’m trying to adjust it to following a bit more of the David Swensen’s investment portfolio model. I use a mix of index funds and some ETFs in my Roth IRA.

My general guideline for my Roth IRA.

Chart: NPR

I’m going to direct future contributions to base it around the Swensen model, even though I may keep less bonds than what he suggests.

Just remember, the sooner you start saving for retirement, the better compound interest will treat you.

Ask Reader’s Thoughts

What’s your allocation for your investment account? How did you decide on them? Any tips or suggestions?

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