September 2012

Stock allocation: 60%.
Fixed Income:  40%

Within fixed income, my portfolio is heavily weighted to short term bonds and  cash due to the very low interest rate environment.

Stocks are allocated as follows:
Total Stock Market: 44%
Int'l Small Cap: 8%
REIT: 8%

International stocks carry much higher transaction costs and uncompensated currency risk. Furthermore  the total international stock index is comprised of very large companies that are truly international in scope and therefore highly correlated to the US domestic stock market. Small international companies should be more highly correlated to their local markets thus providing more pure diversification. In addition, approximately 25% of the Vanguard small cap international is comprised of emerging countries, providing exposure to that sector. Overall, however, due to the transaction costs and currency risk, I have decided to limit international exposure to 8%, far less than the 20-50 percent recommended by most "experts".

The exposure to REIT is based upon the supposed low correlation between real estate and stocks. While international REITs are available, again they carry very high transaction costs, currency risk, and worse, unrecoverable taxes on dividends - and are therefore not worthy of inclusion.

I have eliminated styles, thus no longer carry small cap or value stocks, instead holding the total market only. This is based upon my reading of enough materials from Bogle as well as others ("The Great Mutual Fund Trap") that indicate that styles really don't provide greater returns over time despite the claims of Fama/French.