In the following, we show how to construct a balanced, diversified asset allocation portfolio using the investment options available in your plan. We’ll be following the four-step RAID approach: Risk Assessment, Asset Allocation, Investment Selections, and Disciplined Rebalancing. This method ensures your portfolio is well-diversified and aligns with your risk tolerance.
Investment Options Available:
- LifePath Retirement Portfolio Fund (BlackRock)
- LifePath 2025 Portfolio Fund (BlackRock)
- LifePath 2030 Portfolio Fund (BlackRock)
- LifePath 2035 Portfolio Fund (BlackRock)
- LifePath 2040 Portfolio Fund (BlackRock)
- LifePath 2045 Portfolio Fund (BlackRock)
- LifePath 2050 Portfolio Fund (BlackRock)
- LifePath 2055 Portfolio Fund (BlackRock)
- LifePath 2060 Portfolio Fund (BlackRock)
- Stable Value Fund (JP Morgan Stable Value)
- Bond Fund (BlackRock Debt Index)
- Balanced Fund (BlackRock Balanced)
- Large Cap Value Fund (Dodge & Cox Stock)
- Large Cap Index Fund (BlackRock Equity Index)
- Large Cap Growth Fund (T.Rowe Price Institutional Large Cap Growth)
- Small-Mid Cap Value Fund (Wedge Capital Management Small/Mid Cap Value)
- Small-Mid Cap Index Fund (BlackRock Extended Equity Market Index)
- Small-Mid Cap Growth Fund (TimesSquare Small/Mid Cap Growth Strategy)
- International Value Fund (Dodge & Cox International Stock)
- International Index Fund (BlackRock MSCI ACWI ex U.S. IMI Index)
- International Growth Fund (GQG Partners)
- Home Depot Stock Fund
The major asset classes covered by these investment options are: US stocks, international stocks and bonds. Each major asset class has index funds represented. It also features two excellent active stock funds from Dodge & Cox.
Step 1: Risk Assessment
Before deciding on how much to allocate to stocks and bonds, you need to evaluate your risk profile. This involves examining your risk tolerance, age, job stability, and growth expectations. For a comprehensive guide on determining how much should be allocated to stocks, visit MyPlanIQ: Get Started Now.
Step 2: Asset Allocation
Next, decide on the allocation to each major asset class. Based on the provided investment options, we have US stocks, international stocks and bonds available. For a moderate asset allocation portfolio using only these options, we recommend the following allocation:
- 42% US Stocks
- 18% International Stocks
- 40% Bonds
For more details on asset allocation templates, you can refer to Asset Allocation Portfolio Templates.
Step 3: Investment Selections
After determining the asset allocation, select specific funds for each asset class. Since we only have US stocks and bonds available, your selections should focus on low-cost index funds if they are available. Here’s an example:
- US Stocks (42%): Allocate 42% of your total investment to Large Cap Index Fund (BlackRock Equity Index) on US stocks or Dodge & Cox Stocks
- International Stocks (18%): Allocate 18% to International Index Fund (BlackRock MSCI ACWI ex U.S. IMI Index) or Dodge & Cox International Stocks
- Bonds (40%): Allocate 40% of your total investment to Bond Fund (BlackRock Debt Index) focusing on bonds.
Step 4: Disciplined Rebalancing
Regular monitoring and rebalancing of your portfolio are crucial to maintaining your desired asset allocation. We recommend reviewing your portfolio at least annually. During this review, ensure that the proportions of stocks and bonds remain consistent with your original plan. Adjustments might be necessary to realign with your risk tolerance and financial goals.
By following the RAID approach, you’ll be well on your way to building a balanced and diversified portfolio aligned with your risk tolerance and long-term financial goals. Remember, the key to successful investing is staying disciplined and maintaining a long-term perspective.