How To Allocate Assets: Personal Portfolio Management Part 1

Posted by Fitz Villafuerte under Investing, Personal Finance on September 24, 2012

Last week was quite busy for me as I took time off from blogging and focused my energy on rebalancing my personal asset portfolio.

And this week, I’d like to share with you how that is basically done.

This three-part post will give you a simple and beginner’s guide to creating your portfolio, diversifying your assets, and how to rebalance them to ensure that they will always meet your investment goals.

To start things off, I’d like to give you an overview on the topic of asset allocation.

As always, before you invest, there are two things you need to be able to accomplish first before anything else, they are:

  1. You have been living below your means for quite some time now – which follows that you don’t have huge and outstanding consumer or credit card debts.
  2. You already have an emergency fund. This should be at least 6 months worth of your expenses saved as cash.

Asset Allocation 101

A few months ago, I gave a simple formula to creating your starting portfolio which is solely based on your age.

To review, your portfolio should contain low-risk, moderate-risk and high-risk investments – whose percentage allocation should follow the formula:

  • Low Risk = AGE / 2
  • Moderate Risk = 50%
  • High Risk = (100 – AGE) / 2

This means if you’re 40 years old, then 20% of your portfolio should be in low-risk investments, half or 50% should be in moderate risk investments, and 30% in high-risk investments.

Simple enough, right?

Now that you’ve determined your portfolio’s risk percentages, it’s now time to decide where to invest exactly. Below are some of your choices:

Low Risk Investments

  • Cash Deposits (time deposits, special deposit accounts, etc)
  • Bonds (savings bonds, government bonds, treasury bills, etc.)
  • UITF and Mutual Funds (money-market funds, short-term funds, etc.)
  • Insurance (term life, VUL, long-term healthcare, etc.)
  • Small-scale business ventures (home-based businesses, small-cap franchises, single-prop businesses, etc.)

Medium Risk Investments

  • UITF and Mutual Funds (balanced funds, index funds, etc.)
  • Network or Multi-level Marketing business
  • Medium-size business enterprises (medium-cap franchises, single-prop or partnership businesses)
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  • Real Estate (private equity funds, real estate investment trust funds, etc.)

High Risk Investments

  • UITF and Mutual Funds (equity funds, foreign currency funds, etc.)
  • Large-cap businesses (master franchising, corporations, etc.)
  • Stock Market and Currencies or Forex (trading, speculative investing, etc.)
  • Real Estate (property flipping, acquisition of rental assets, etc.)

Be sure to choose investments and assets that’s in line with your interests, and more importantly, those which suit your investment horizon and objectives.

When NOT to follow the formula:

Personal finance is personal
The above age formula is just a suggestion. And please keep in mind that personal finance is always a personal endeavor – nobody can decide how exactly you should handle your money better than you.

The psychology of risk
Fear and greed – two emotions that you need to control to be able to succeed in investing. If you’re still learning how to master them, then it’s better to have less high-risk investments first.

A vision of the future
The economy, both local and global, play an important role on how investments perform. The better the outlook on the country’s future economic growth, the more aggressive you can be with your investments.

End of Part 1

Series Guide:

  • How To Allocate Assets: Personal Portfolio Management Part 1
  • How To Diversify Investments: Personal Portfolio Management Part 2
  • How To Rebalance Your Portfolio: Personal Portfolio Management Part 3
  • Other Posts Which You Might Find Helpful:

  • An Investing Guide for People Who Are Afraid to Invest
  • A Beginner’s Guide To Investing In Anything and Everything – 2 parts!
  • 6 Quick Tips For Beginner Investors
  • Get more personal finance tips like this by subscribing to Ready To Be Rich.

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    Photo credit: fdecomite

    Disclaimer: The investing tips in this post is solely based on personal knowledge and experience. It does NOT constitute as professional financial advice. Consult with a certified adviser to address your specific financial concerns.




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    2 Responses to “How To Allocate Assets: Personal Portfolio Management Part 1”


    1. Jonathan says:

      Hi Fitz! Thanks for sharing to us these valuable information. I’m an OFW working here in Singapore and I’ve been working here with my wife since May 2011 (17 months) but started investing only last August 2011 so my portfolio is pretty small compared to some of the OFW I know here. Anyway, I just want to share my asset allocation that I learn from a Canadian high school teacher who’s working also here in Singapore (www.andrewhallam.com). I don’t invest in real estate back home coz I don’t know if we’re going to retire there. So I need to create a portfolio that is easy to manage, base on my age of 33, and that wherever part of the world I can still continue my trades and use it when I completely retire (maybe in another 27 years time).
      What I did is I create a low costs, global diversified portfolio of stocks index,bonds index and a lil bit (10% of total portfolio) of individual stocks. And I rebalance as and when I get my salary.

      US BOND INDEX 11.60%
      SINGAPORE BOND INDEX 10.72%
      US LARGE BLEND STOCK INDEX 10.27%
      US LARGE VALUE STOCK INDEX 10.25%
      SINGAPORE STOCK INDEX 8.88%
      SG INDIVIDUAL STOCKS 8.59%
      INTL. LARGE-CAP & MID-CAP STOCK INDEX 7.37%
      EMERGING MARKETS STOCK INDEX 5.22%
      INTL. BOND STOCK INDEX 4.85%
      COMMODITIES 1.83%
      INTL. VALUE STOCK INDEX 1.11%

      I use Vanguard (www.vanguard.com)for most of stocks/bond index purchases. My goal is to buy and hold these until I retire. Personally, I would like my portfolio to lean more towards SMALL and VALUE side of things (base on FAMA & FRENCH principles), but since limited ang budget I can only buy them as and when I have the money.

      I’m happy to say that since last year, this portfolio has earned 10.41% after fees/charges/expenses and taxes (there is no capital gain here in Singapore, but I must pay GST for my brokerage fees. I use Standard Chartered Bank here that charges 0.20% of brokerage fees. No minimum commission). Might be small for some, but hey I buy one every month (or every other month depending if I have the funds to do so. Usually every xmas vacation sa pinas, wlang matitira pang invest).

      I hope every OFWs start investing for their retirement coz we don’t want to create another sandwich generation in the future (meaning our kids supporting us while there are also supporting their own kids).

    2. vher says:

      Hi Fitz,

      Have you ever heard about GPRS GLOBAL PINOY REMITTANCE SERVICES?

      How would you assess these business venture?

      Especially for us as a OFW.

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