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Constructing a Balanced, Diversified Asset Allocation Portfolio for AQR Capital Management, LLC 401(K) Plan Participants

Creating a balanced and diversified asset allocation portfolio is crucial for long-term financial success. This article will guide you through the four-step RAID approach to help you construct a well-diversified portfolio using the investment options available in the AQR Capital Management, LLC 401(K) Plan.

Available Investment Options

  • AQR RISK PARITY COLLECTIVE INVESTMENT
  • AQR DIVERSIFYING STRG CIF CL G
  • PUTNAM STABLE VALUE FUND
  • BLACKROCK LIQUIDITY FUNDS FEDFUND
  • VANGUARD FEDERAL MONEY MARKET
  • VANGUARD TOTAL BOND
  • VANGUARD MID CAP INDEX FUND
  • VANGUARD INSTITUTIONAL INDEX
  • VANGUARD SMALL CAP INDEX ADM
  • VANGUARD TOTAL INTL STOCK ADM
  • VANGUARD EMERGING MRKTS ADM
  • VANGUARD 2055 TARGET RETIREMNT
  • VANGUARD 2050 TARGET RETIREMNT
  • VANGUARD 2045 TARGET RETIREMNT
  • VANGUARD 2040 TARGET RETIREMNT
  • VANGUARD 2035 TARGET RETIREMNT
  • VANGUARD 2030 TARGET RETIREMNT
  • VANGUARD 2025 TARGET RETIREMNT
  • VANGUARD 2020 TARGET RETIREMNT
  • VANGUARD 2060 TARGET RETIREMNT
  • VANGUARD 2065 TARGET RETIREMNT
  • FIDELITY INFLATION PROT BD INX

Major Asset Classes Covered

  • US Stocks: VANGUARD MID CAP INDEX FUND, VANGUARD INSTITUTIONAL INDEX, VANGUARD SMALL CAP INDEX ADM
  • International Stocks: VANGUARD TOTAL INTL STOCK ADM
  • Emerging Market Stocks: VANGUARD EMERGING MRKTS ADM
  • Bonds: VANGUARD TOTAL BOND, FIDELITY INFLATION PROT BD INX

Step 1: Risk Assessment

Determining your risk profile is the first step in constructing your portfolio. Your risk tolerance, age, job stability, and growth expectations are key factors to consider. For a detailed guide on assessing your risk profile, visit MyPlanIQ Risk Assessment Guide.

Step 2: Asset Allocation

Once you have assessed your risk profile, the next step is to decide how much to allocate to each major asset class. Utilize the allocation templates discussed in MyPlanIQ Asset Allocation Templates to guide your decisions.

Example: Moderate Asset Allocation Portfolio

Given the available investment options, we can construct a moderate asset allocation portfolio as follows:

  • US Stocks: 42% (VANGUARD MID CAP INDEX FUND, VANGUARD INSTITUTIONAL INDEX, VANGUARD SMALL CAP INDEX ADM)
  • International Stocks: 18% (VANGUARD TOTAL INTL STOCK ADM)
  • Bonds: 40% (VANGUARD TOTAL BOND, FIDELITY INFLATION PROT BD INX)

Step 3: Investment Selections

After deciding on the asset allocation, the next step is to select specific funds for each asset class. Emphasize low-cost index funds, especially for the stock portion of your portfolio.

  • US Stocks:
    • VANGUARD INSTITUTIONAL INDEX (Large Cap)
    • VANGUARD MID CAP INDEX FUND (Mid Cap)
    • VANGUARD SMALL CAP INDEX ADM (Small Cap)
  • International Stocks: VANGUARD TOTAL INTL STOCK ADM
  • Bonds:
    • VANGUARD TOTAL BOND
    • FIDELITY INFLATION PROT BD INX

Step 4: Disciplined Rebalancing

Regular monitoring and rebalancing of your portfolio are essential to maintain your desired asset allocation. Rebalance your portfolio at least annually or whenever your asset allocation deviates significantly from your target.

Conclusion

Constructing a balanced and diversified asset allocation portfolio involves careful planning and disciplined execution. By following the RAID approach and utilizing the available investment options, you can build a portfolio that aligns with your risk tolerance and financial goals. For more detailed guidance, refer to the resources provided by MyPlanIQ.