Will invest 30% in bonds, 40% into U.S. equity funds and 30% into international equity funds

From what I am learning but based primarily on Paul Merriman’s “Ultimate Buy-and-Hold Strategy”, my investment portfolio will be structured to return as much as possible yet keep the risk of a major market drop in check. What follows is my current plans on how I will allocate my investment funds.

Bonds will be 30% of my portfolio. Although I am tempted to put a higher percent in equities, everything I read shows that the return is not significantly lowered by adding the bonds and instead the risk factor (beta) is significantly improved.

According to Merriman’s “Ultimate Buy-and-Hold Strategy - Portfolio 2,” the bond portfolio should be invested in 2 to 5 year maturity bonds.

The equity portion of my portfolio will be divided 40% into U.S. equity funds and 30% into international equity funds. The international exposure not only gives good opportunity but, according to Merriman, there is significant non-correlation between the two markets since they are affected not only by different economies but also by the variation of the currency exchange rate.

Domestic equities will be divided equally between 4 sectors (if that is the right word), large-cap blend, small-cap blend, large-cap value, and small-cap value funds. Growth funds are not specifically represented in the mix but that sector is probably well represented in the blend funds.

International equities are also divided into 4 equally funded sectors, large-cap blend, small-cap value, large-cap value, and emerging markets.

So, here is my breakdown:

• 30% Bonds
  • short-term (2-5 year)
• 40% U.S. Equities
  • 25% large-cap blend
  • 25% small-cap blend
  • 25% small-cap value
  • 25% large-cap value
• 30% International Equities
  • 25% large-cap blend
  • 25% small-cap value
  • 25% large-cap value
  • 25% emerging markets

In the next article I will look at what funds I will use in each investment sector.