Portfolio Models

Selected Portfolio Models

Based on the asset allocation patterns of Benjamin Graham and John C. Bogle, following are the few selected models:

1) Benjamin Graham’s 50/50 Balance Asset Allocation Model

 Benjamin Graham specifies a portfolio with 50% in equity and 50% in debt. The balance will always be restored by selling equities when that portion rises, or by transferring from the debt when the equity portion declines.

 2) John C. Bogle’s Asset Allocation Models

Portfolio model based on the nature of asset allocation:

1. Basic Managed Portfolio:        50% in diversified equity (value stocks)

25% in government securities

25% in high-grade corporate bonds

2. Basic Indexed Portfolio:          50% in stock market index

50% in bond market index

3. Complex Managed Portfolio:   20% in diversified equity value stocks

20% in aggressive growth stocks

10% in sector specific stocks

30% in long-term bonds

20% in short-term bonds

4. Readymade Portfolio:            60% in single equity index

40% in single debt index

Portfolio model based on life cycle phases:

1. Younger investors in accumulation phase:   80% Equity

20% Debt

2. Younger investors in distribution phase:     60% Equity

40% Debt

3. Older investors in accumulation phase:       70% Equity

30% Debt

4. Older investors in distribution phase:          50% Equity

50% Debt

Bogle gives a nice rule of thumb for asset allocation, which states that ‘Debt portions of an investor’s portfolio should be equal to his age. So let a 30 years old investor make 70/30 asset allocation, and at age 50, let him balance it out. And so on.’