The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (Apr. 2, 1997)

Yesterday I wrote about the need for a balanced investment approach, but I didn't go into any details about how one would develop such a portfolio balance. So let's look at one way to decide how to weight your portfolio.

Conventional wisdom, and the standard answer you'll get from most financial planners, is to have some combination of bonds, stocks, and cash. I suspect you know by now that Fools don't heed conventional wisdom in most cases. Such is true here as well. First things first, then, I'm only interested in building a balanced portfolio of stocks, not an asset allocation model incorporating bonds and cash. (Remember, the primary assumption we work from here is that you're investing money you plan to leave invested for years, not your emergency fund or next month's house payment.)

One thing the traditional financial planners will suggest is to shift out of stocks and into bonds as you get older, as a way of reducing your risk and focusing more on income. I steal a part of that reasoning and apply it to my own allocation model.

An easy way to balance your Value (Dow) and Growth components is to place a percentage of your portfolio approximately equal to your age into Value Stocks and the rest in Growth. That shifts you gradually from an aggressive to a conservative weighting as you get older, but it allows you to stay fully invested in stocks and still have that capital appreciation associated with even the simple Dow Approaches.

A 40-year-old, then, might hold 4 Value stocks and 6 Growth stocks in a 10-stock portfolio. A 60-year-old would hold just the reverse, 6 Dow stocks and 4 Growth stocks. You can make this as loose or as precise as you like by adjusting the allocation at the end of each year when you update your Dow stocks.

This isn't, of course, the only way to structure a balanced portfolio, but for those of us who thrive on guidelines, it's one that makes it easy to weight the two parts of a portfolio in a turn-key approach. Fool on!

Monthly Growth Screens
(Jan. 3 to present)
 8.76%  Relative Strength  
 1.26%  Low Price/Sales  
 0.27%  S&P 500 Index  
-0.13%  YPEG Potential  
-9.70%  Investing for Growth  
-15.80%  EPS Plus RS  
-22.73%  Formula 90  
-28.00%  Unemotional Growth  

Annual Value Screens
(Jan. 1 to present)
 4.65%  Dogs of the Dow  
 2.36%  Beating the S&P  
 1.07%  Dow Jones Ind Avg  
-2.69%  Unemotional Value  
-2.69%  Beating the Dow  
-3.03%  Dow Combo  
-5.87%  Foolish Four