Asset Allocation made simple

Hello 🌻

I want to talk about asset allocation today.

Once you decide

1. The fund manager/broker you are going to buy ETFs from (don’t forget to study their charges!!)
2. You understand the difference between investment & speculation.

You can think about how to allocate your investment into different products.

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To make it simple, I will divid it into 3 different categories.

1. High-grade Bonds ETFs (Safest)
2. Share ETFs (Medium)
3. Speculation (Can be high risk so only if you want to😉)

So how do you divide them?

People used to say that if you subtract your age from 100, that is the % you should allocate into buying non-bonds products (mainly shares I guess).

For example,

1. If you are age 35 (100-35=65), you put 65% into shares & 35% into bonds
2. If you are age 60 (100-60=40), you put 40% into shares & 60% into bonds.

Older you are, higher your bonds allocation should be to make your investment safer.

However, our life expectancy has risen, so “100 minus your age” might not necessarily apply now these days. Some advice that “110-your age” or even “120-your age”

It is up to you which rule you want to apply, but I will apply “110-your age”rule today.

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So if you are age 40. You should be putting 110-40 = 70% into shares &30% into bonds. Simple right??

But what if you want to speculate?

As I explained before, the definition of speculation varies depending on individual, but you need to have your own opinion about it. https://samuraihinata.home.blog/2019/03/17/do-you-want-to-speculate/

For me, I would put commodities such as gold, oil etc ETFs into speculation. Also If I were going to buy a particular stock, I would put that into the speculation category as its risk is not diversified like S&P500 ETFs.

If you decide that you want to put 10% of your investment into speculation, you can take that off from 70% share allocation. So the final asset allocation will be

1. 30% into high-grade bonds ETFs
2. 60% into stock ETFs
3. 10% into speculation

If you want to take more risk, I guess you could take 5% off from each bonds & share allocation.

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This is just a guideline so you don’t necessarily follow this. I’m sure that there are more sophisticated way to apply this theory, but I like making things simple and easy to understand. So this is the way I do it😀

My happy samurai life in London💫