Comments on: Check Your Asset Diversification Across All Accounts

By: Pinyo

Pinyo — Sat, 27 Oct 2007 02:04:51 +0000

I am in the same camp as you in a sense that I don’t holistically diversify. I do approximate the diversification across accounts, but not to the exact percentages. Since each of my account has slightly different purpose, I tend to allocate each account individually.

By: Free Money Finance

Free Money Finance — Fri, 26 Oct 2007 10:19:21 +0000

Star Money Articles for the Week of October 22

Here are some recent interesting posts from the MoneyBlogNetwork and beyond: Blueprint for Financial Prosperity reminds you to check your asset allocation. No Credit Needed got his van. Get Rich Slowly lists the seven habits of wealth. Consumerism Comm…

By: mbhunter

mbhunter — Thu, 25 Oct 2007 04:38:04 +0000

The 120 – age rule, along with managed funds that change the allocation automatically with time, encourage people to not think carefully about what they’re doing and lead to a false sense of security.

By: jim

jim — Wed, 24 Oct 2007 21:24:13 +0000

JohnnyB: Yeah you’re right, it’s that correlation and covariance that makes a difference, I was just speaking from the perspective of diversification as it is commonly understood. I think the idea of that curve might be too complex for me to try to explain (that’s an indictment on my ability to explain it in written form, not an opinion of reader intelligence) on a blog.

The advice you’re looking for me to give is not something I feel comfortable or qualified to give. Who am I to pick which class is best? Which class someone should use to diversify with? Folks sometimes need a reminder and that’s what I felt this post was about.

By: bugmom

bugmom — Wed, 24 Oct 2007 21:02:11 +0000

One often overlooked account is the 401(k). Especially if you use a full service broker. Lots don’t analyze the 401(k) because it is not money they “advise” but it is a very important part of the mix and is the account most likely to put you out of whack. Morningstar.com has a nifty tool called a “portfolio x-ray” that you can use to look at the AA of multiple accounts and to also check for overlap in your mutual funds. I haven’t used it in awhile (I should probably do another review) but I think it is either free or you can get a fre 30 trial. Something like that because I know I’ve never paid for it…

By: JohnnyB

JohnnyB — Wed, 24 Oct 2007 20:16:18 +0000

Doing what you did doesn’t really tell you a thing. Likely you are much less diversified than you think. Want to check how diversified you are then check the correlations to the stocks you own. You may find that they all are greater than 80% correlated to one another regardless of market cap size, well maybe except for small co’s that have disengaged as of late.

Asset Allocation worked when no one knew what it was or didn’t apply it. Going forward it will not carry the same benefit it once did now that everyone knows it. I feel fairly good in telling you that the next time we enter a correction or bear market all asset classes will go down in sync just some more than others. You need to look at alternative asset classes to have a chance going forward at properly diversifying.

Just try to find an asset class that hasn’t been positive the past 4 years. It didn’t used to work this way. I think those that don’t understand are going to be in for another rude awakening.

Recall a month ago when I said the advice you provide is too generic and thus is not helpful? This is one such example of providing shallow analysis.

Those that read this article will walk away with the belief they are properly diversified if they have 4 different stock funds.

By: Creative Investor

Creative Investor — Wed, 24 Oct 2007 17:40:39 +0000

I’m not sure what you have can be called “asset diversification.” I mean all you have is equities and some bonds. Asset diversification refers to allocating your assets between real estate (property or REITs), commodities, and yes, stocks and bonds. Although, I personally wouldn’t call your portfolio “diversified,” it doesn’t necessarily need to be any different from what it is right now given the long-term goals that you have – in the next 40 years equities are likely to outperform most if not all asset classes. But closer to retirement I would probably want to be more diversified between different asset classes.

By: NCN

NCN — Wed, 24 Oct 2007 15:53:07 +0000

I was thinking about this very thing the other night…
My wife has a pension plan – so that kinda stands alone, right?

She has a Roth, I have a Roth, and I have a 403b… so I try
to diversify across all of those accounts…

But what about the ESA or 529? Where do they fit in?

NCN

By: plonkee

plonkee — Wed, 24 Oct 2007 12:23:19 +0000

I do this, but since I’m invested entirely in two different index trackers (a variety of funds but tracking the same two indices) its not too much of a problem. I’m 100% equities with at the moment with about 75% in the UK and 25% overseas. I’d like to up the overseas component, but otherwise I’m pretty happy with my stuff.