Obviously, a person's individual asset allocation is going to be based, simplistically, on his/her own situation, goals, and risk tolerance. But in general, what are some specific things you take into consideration when determining your asset allocation?
I find this a most difficult question to answer as it is very fluid. But here are elements that I consider.
Not retired (I want my cash/TIPS to cover 6 months of expenses **)
Retired (I want my cash/TIPS position to cover 2-3 years of expenses **)
** Expenses will fluctuate with time. For example, kids moved out or mortgage is paid off.
Asset Correlation (Diversification) is another item I consider. I specifically write it as such because diversification minimizes risk but only if correctly utilized. To better explain below are some statements:
Hence it is important to have a diversified asset correlation over any other kind of diversification in my opinion.
There are plenty more, but those are the only ones that I can easily state I consider without going into my situation, goals, and risk tolerance which would dictate the percentages I have in various assets.
The most important thing is tracking your assets. know where they are at all times.
