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Aggressive Asset Allocation

At the bottom of this post is an example of an aggressive asset allocation for the current economic environment (4th quarter 2008).

My aggressive scale is 1 to 5 with this example landing on a 4 or 4.5 of that scale.  This example could be applied to your 401(k), 403(b), as well as Roth type of retirement plans.  This asset allocation example can apply to folks in their 20’s, 30’s and 40’s who have the time to recover multiple times from financial failures during those decades in their lives.

The current economic environment (4th quarter 2008) includes wild up and down swings in the stock market, home foreclosure worldwide, job loss worldwide, and banks collapsing are just a few realities of the current global financial melt-down.

However, since we can only count on history to tell us a bit about the future and you have the where-with-all to imagine an economic turnaround eventually, now is the time to look at what you should be investing in for the future.

Massive Withdrawal

Never before have so many people withdrawn money from their mutual funds as in September 2008.  This also happened in 2002.  In other words, people feel so bad about the market falling that they lost/lose money and then took their money out at a time when you should be putting money into the market, when it’s time to get in because there are rock bottom prices and great buys.

When there’s a 20% sale on sweaters, what do you do? Check out the sale.

This tells us what people can and cannot stomach.  In other words, your risk tolerance is challenged in times like these.  That also should tell you how to invest.  In what asset allocations should your money be proportioned.  What makes you sleep at night? This is one question that will drive your decisions regarding asset allocation.

With that said, there will be plenty of people who will NOT ride the market up but get in when the market is close to a top because everything will feel good and not risky.

Again, this is just an example and you can compare it to other funds in your retirement plan.

Balanced Funds – 5%

Good picks are:

  • PIMCO Total Return Admin – Symbol PTRAX

Large Value Stocks – 23%

Good picks are:

  • Columbia Value & Restructuring – Symbol UMBIX

Large Growth Aggressive Stocks – 30%

Good picks are:

  • Fidelity Contrafund – Symbol FCNTX – is a good example of a Large Growth Aggressive Stock fund

Small Value Stocks – 20%

Good picks are:

  • Fidelity Leveraged Company Stock – Symbol FLVCX
  • or Royce Value Plus – Symbol RYVPX
  • or Heartland Value Plus – Symbol HRVIX

Small Growth Stocks – 22%

Good picks are:

  • Brandywine – Symbol BRWIX

For a grand total of 100% allocation.

I use Morningstar.com to research these funds.  Pick one fund for each asset class if your total investment is under $500,000. This is a guideline and not a strict rule.

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