Many investing gurus are of the opinion that asset allocation is the primary determinant of portfolio returns.

My own experience so far bears this out. For instance, I’ve been holding off buying bonds for two years now figuring that yields would rise (inversely prices go down). But, in 2004 bonds returned about 7%.

Based on my age (31 years) and risk tolerance (high), I arrived at the following asset allocation:

Cash: 5-10%
Bonds: 20-25%
Equities:
Canada: 20-26%
US: 20-26%
EAFE: 13-18%
Emerging Markets: 10-15%
REITs: 5-10%

Canadian equity exposure will be mainly through equities. Foreign investments will be mainly through ETFs and blue-chip dividend paying equities.

A very useful asset allocation calculator can be found here. I plugged in my asset allocation numbers and found that for the past five years my portfolio would have returned about 6.5%.

More online resources on asset allocation and ETFs can be found at these sites: