FIN 352: Investments I  -   Professor Dow
    Part I. Investing Basics

 

Topic  4. Asset Allocation

 

Deciding how to allocate your wealth across different types of assets is one of the most important investment decisions you’ll make.  This topic teaches you how to make that decision.

Reading: The SEC's Beginner's Guide to Asset Allocation

Reading: My Notes on Asset Allocation

Lecture:  Asset Allocation (in class)

Assignments:

Assignment 5: Investing Goals and Risk Tolerance.

Assignment 6: Asset Allocation: The Allocation

Assignment 7: Asset Allocation: Choosing Mutual Funds

Supporting Links:

Here is a simple quiz that evaluates your attitude towards risk. This is a replacement quiz for assignment 5.

Quiz about attitudes towards risk

Here are some websites the offer simple rules about asset allocation

"Lazy" Asset Allocation
American Association of Individual Investors (AAII) on Asset Allocation

 

An asset allocator is a software program that takes basic financial information about a person and then recommends an asset allocation. The programs will differ by how much information they require and how detailed their recommendations are. Here are three allocators (in order of increasing complexity). You will use the first one in assignment 6.

Asset Allocator-CNN/Money
Asset Allocator-Iowa Public Employees' Retirement System
Asset Allocator-Vanguard

One complication is determining which assets should be counted in your investment portfolio. Here is AAII's take on that.

What Assets Count

Some mutual fund companies offer "life cycle funds" that invest in both stocks and bonds in a ratio "appropriate" for your age. Here is AAII's discussion of those funds

AAII on Life-Cycle Funds

And here are Fidelity's version of those funds.

Fidelity Mutual Funds

Click on "Freedom Funds" to see their different funds. Also click on "Learn more..." to learn more.

 

So far we have been discussing asset allocation in the context of mutual funds; however, you can also use EFT's (or individual stocks and bonds for that matter)

Using ETFs for Asset Allocation