Asset allocation

Asset allocation is a high level overview of your investment portfolio. It’s a way of categorizing one's investments into broader groups. Your asset allocation should also take into consideration all of your holdings. This includes any retirement accounts, brokerage accounts, cash, home equity, crypto wallet, etc.

There are some pretty handy tools to help you classify your assets based on trading symbols (Personal Capital is one I use, but requires auth similar to Mint, https://www.portfoliovisualizer.com/ is a pretty stellar free option, as well). There’s also the good ol’ fashioned "do it by hand" in Excel if you classify them yourself. I highly suggest you do this exercise to see if you are overweighted in one asset class or another. Do not forget that your vested RSUs are a single company equity and are highly concentrated on the performance of your company.

Given the benefits of Diversification, one should have an asset allocation target. As alluded to in the diversification section, I typically target the big 4, US equities, International equities, US & international bonds. I do have alternative holdings, such as REITs, but it makes up a negligible part of my portfolio. You will typically hear a few “rule of thumbs” when it comes to asset allocation (80/20, 60/40, 100 - your age / your age, where the first number is the equity %, the second is bond %).

I argue against using the rule of thumb approach here. Asset allocations are highly personal and should not be something one takes the most expedient option on, but instead take the time to assess your situation.

Here’s generally some factors to consider:

Factor	Consideration
Emotional investor - If you are always eying your holdings and making decisions based on whims and intra-day market movements	Increase your bond holdings. If you cannot stomach watching your retirement balances decrease because of market volatility and are quick to make trades to try and stop the bleeding, you are indicating that you have a low tolerance for risk. Bonds will help alleviate the volatility while still generally helping combat inflation
Short withdrawal time frame - You are planning to draw from investments soon. This could be retirement or for a short term savings goal	Lower equity holdings, consider bonds / cash / cash equivalents. You will want to make sure you are changing the allocation in the most optimal account to withdraw from (i.e. brokerage/HYSA, IRA for retirement). As you near withdrawing, you will want to preserve capital (aka move away from volatility, such as what equities present).
Long withdrawal time frame - You are saving for a 5 year+ goal, such as retirement.	Increase equity holdings, I am personally at 90% equities with a 10+ year timeline. I would say that most people in their 20s should be nearly 100% equities unless saving for short term goals.
Secure job and/or dual income - You can weather a lay off by finding a new job in a short timeframe (i.e. tech is in high demand right now), or can rely on somebody else to support you while unemployed	Increase equity holdings. My wife works in Child Protective Services and covers most of our expenses, it’s unlikely tech goes under and child welfare experiences layoffs at the same time (unfortunate fact of life). Given this, our need to withdraw from investments during a layoff of one or the other is unlikely, and does not leave us subject to market volatility as much
You are a risk taker and chase gains - Options trading? Crypto? /r/wallstreetbets subscriber?	Limit exposure to a defined %. Identify what you’re willing to have go to 0. That’s your “fun money” to do risky investments with. When you achieve glorious amounts of tendies, rebalance back to that %. See Rebalancing

Evan’s hot take on bond holdings: If you are looking to de-risk your investments and are considering investing in bonds to do so, I would consider looking at your mortgage, if you hold one. The way I looked at my mortgage (when I had one) was that it was my bond allocation. It’s a fixed 3.375% bond. By redirecting a portion of your cash flow away from stocks and towards your mortgage, you are increasing your equity in terms of your asset allocation. In today’s bond economy, even the current refinance rates of 2.75% are a pretty stellar ROI compared to a bond fund like BND, yielding 2.46% in dividends.

In addition to the “yield” of paying down your mortgage being higher, it is also generally tax free (real estate capital gains apply in some situations). Plus, it is also able to be “withdrawn” in the form of a HELOC or by selling the home and converting the equity to cash. The latter only applies if you ever intend to move from said home, though.