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Asset Class Adjustments

Asset Class Adjustments

In the Defensive section we mentioned that some asset classes tend to be more volatile than others. This volatility, however, may also lead to higher returns. By increasing your exposure to these asset classes, you may increase your risk, but also increase your return over time. The example below is the opposite of what we saw with defensive asset class adjustments. US Large Growth (to accommodate more technology or thematic investments), US Mid/Small-Caps and Emerging Markets stocks are increased while exposure to “Blue Chip” U.S. Large Cap asset classes and Real Assets are reduced. On the bond side, High Yield and Global Bonds are increased while US Investment Grade Core Bonds, Inflation-Protected Bonds, and Cash/CDs are reduced.

  Core 60 Aggressive 60
Stocks: 60%    
US Large Growth 10.5% 15%
US Large Blend 10.5% 9%
US Large Value 10.5% 7%
US Mid/Small Growth3.5%5%
US Mid/Small Blend 3.5% 4%
US Mid/Small Value 3.5% 4%
Real Assets 6% 3.5%
International Core Equity 9% 8%
Emerging Markets 3% 4.5%
Alternatives: 3.5%    
Hybrids 2% 2.5%
Precious Metals 1.5% 1%
Bonds: 36.5%    
US Investment Grade Core 25% 20.5%
Global/International 4% 8%
Inflation Protection 4% 2%
High Yield 2.5% 5%
Cash/CDs 1% 1%

The allocation is still diversified and well-balanced, but it leans more aggressive. The adjustments can be made portfolio-wide, as in the example above, or simply within a few asset classes.