American Association of Individual Investors Web site
MISSION
STATEMENT
"Investing Pathways" is an educational site designed to benefit persons who would like an introduction to investing.

The 150,000 members of the American Association of Individual Investors (AAII) welcome you to this unique site covering: investing basics, asset allocation, and financial planning strategies.


RetirementAsset AllocationAbout AAII

Asset Allocation

At first glance, many investors assume that the basic asset allocation decision is an easy one. After all, at this level you are focusing on only two choices—stocks and bonds.

While the choices are few, the way you allocate your portfolio among these two categories will have by far the greatest impact on your performance of any investment decision you make. We developed this page to ensure that you receive the information and insights needed to find the best asset allocation for your particular situation.

Time Horizon
Age:Often 18-35
30+ Years:Long
Investment
Horizon
For investors who are
very risk tolerant
Characteristics
Growth:Substantial
Income:Very Low
Risk:Substantial
Year-to-Year
Volatility of
Portfolio Value
10%Average Annual Growth in Value
-35%Bad Year
Allocations
10% Fixed Income
90% Diversified Stock
Portfolio Return
YTD: 3.3%
1 yr: 10.9%
5 yrs: 8.8%
10 yrs: 7.7%
Transitions
20% Fixed Income
80% Diversified Stock
Investors, as they age, usually transition their portfolios toward less risky and less aggressive asset allocations.
Time Horizon
Age:Often 35-55
20+ Years:Mid-Term
Investment
Horizon
For investors who can tolerate some risk
Characteristics
Growth:Moderate
Income:Low
Risk:Moderate
Year-to-Year
Volatility of
Portfolio Value
8%Average Annual Growth in Value
-25%Bad Year
Allocations
30% Fixed Income
70% Diversified Stock
Portfolio Return
YTD: 2.4%
1 yr: 8.2%
5 yrs: 7.4%
10 yrs: 6.9%
Transitions
40% Fixed Income
60% Diversified Stock
Investors, as they get closer to retirement, usually transition their portfolios toward lower risk and more conservative allocations.
Time Horizon
Age:Often 55+
10+ Years:Short-Term
Investment
Horizon
For investors who are
not risk tolerant
Characteristics
Growth:Low
Income:Moderate
Risk:Low
Year-to-Year
Volatility of
Portfolio Value
6%Average Annual Growth in Value
-16%Bad Year
Allocations
50% Fixed Income
50% Diversified Stock
Portfolio Return
YTD: 2.2%
1 yr: 6.5%
5 yrs: 6.3%
10 yrs: 6.3%

As proxies for the asset allocation historical performance, the following funds are used:

Large-cap stocks: Vanguard 500 Index Inv (VFINX)
Mid-cap stocks: Dreyfus Mid Cap Idx Inv (PESPX)
Small-cap stocks: Vanguard Small Cap Idx Inv (NAESX)
International stocks: Schwab International Idx (SWISX)
Emerging market stocks: Vanguard Emerging Mkts Stock Idx Inv (VEIEX)
Intermediate bonds: Vanguard Intermed-Term Treasury Inv (VFITX)
Short-term bonds: Vanguard Short-Term Treasury Inv (VFISX)



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