AAII Asset Allocation Models

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.

If you think you are already an Asset Allocation Pro, then take our quiz to test your knowledge. If you're uncertain, the AAII Asset Allocation Mini Course is found on the right hand side of this page. Or if you simply want to dig into our investor profiles and risk/return numbers of our three suggested allocations then simply dig into the models below.

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: 6.4%
1 yr: 3.7%
5 yrs: 8.9%
10 yrs: 4.8%
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: 5.7%
1 yr: 3.5%
5 yrs: 7.8%
10 yrs: 4.8%
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: 4.8%
1 yr: 3.3%
5 yrs: 6.9%
10 yrs: 4.6%

Suggested Allocation Breakdowns

Once you've determined what Kind of investor you are (Conservative, Moderate or Aggressive) it is time to focus your energy on the nuts and bolts of the asset allocation process. In other words, it's time to slice up the stock and bond pies into allocations across specific investment categories: large, mid, small, and international stock holdings, plus determining how much intermediate or short-term bonds you want to own. The following suggested Asset Allocation breakdowns from AAII can serve as your guide.

We've read the research, talked to the pros and developed what we feel are solid, all weather asset allocation models for long-term investors. To get started, simply spend some time refl ecting on the projected average annual returns as well as the possible bad year scenarios for each model and then look at the return data in the second chart to get a feel for how each actual asset class has performed over differing time periods. If you want to dig even deeper into why it pays to diversify than take a moment to take our brief Slicing up the Stock and Bond Pie Mini Course found in the right hand column.

Suggested Allocation Breakdowns
20%Large-Cap Stocks
20%Mid-Cap Stocks
20%Small-Cap Stocks
20%International Stocks
10%Emerging Markets Stocks
10%Intermediate Bonds
0%Short-Term Bonds
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: 6.4%
1 yr: 3.7%
5 yrs: 8.9%
10 yrs: 4.8%
Transitions
20% Fixed Income
80% Diversified Stock
Investors, as they age, usually transition their portfolios toward less risky and less aggressive asset allocations.
Suggested Allocation Breakdowns
20%Large-Cap Stocks
20%Mid-Cap Stocks
10%Small-Cap Stocks
15%International Stocks
5%Emerging Markets Stocks
30%Intermediate Bonds
0%Short-Term Bonds
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: 5.7%
1 yr: 3.5%
5 yrs: 7.8%
10 yrs: 4.8%
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.
Suggested Allocation Breakdowns
25%Large-Cap Stocks
10%Mid-Cap Stocks
10%Small-Cap Stocks
5%International Stocks
0%Emerging Markets Stocks
40%Intermediate Bonds
10%Short-Term Bonds
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: 4.8%
1 yr: 3.3%
5 yrs: 6.9%
10 yrs: 4.6%