Tentative Portfolio Allocation Targets

Now I'm looking at the capital allocation between stocks, mutual funds, etc. Here is the breakdown that I'm currently considering:

• 45% - Stock Portfolio (about a dozen top stock picks)
• 30% - International Mutual Funds
• 10% - Domestic Mutual Funds
• 5% - Speculative and merger arbitrage trading10% - Cash

It is definitely on the aggressive side, but I figure that good research takes away a good portion of the risk and long-term investment outlook (well, with the exception of speculative and merger arbitrage trading) further mitigates the risk. I feel pretty comfortable researching stocks and I think I'm not too bad at researching mutual funds either. I've researched and picked a handful of mutual funds last fall and they have all performed well even though their focus is varied.

Domestic mutual funds are meant to complement the stock portfolio, which represents a mostly domestic exposure. Domestic mutual funds that I'll be looking at will most likely have a relatively concentrated portfolio of mid-caps and small-caps with unorthodox investing strategy since I don't want a fund following the small-cap index, which isn't expected to perform too well now.

International mutual funds will diversify the overall portfolio to make sure I'm exposed to the global market gains. This is somewhat of a hedge against the U.S. economic slowdown.
Speculative and merger arbitrage trading are meant to ennhance the overall portfolio performance. It is to take up only 5% of the portfolio because it is risky and it is also meant to teach me more about markets as I make these trades. You could a call it a "play money" portfolio segment, but money is money and money involved in the speculative trading are just as valuable to me as money in the mutual funds or the stock portfolio.

And cash is there as the backup funding for additional market opportunities. For example, if Bank of America were to tank on the news that it will writing off gazillions of dollars at the end of the fourth quarter, I could use that backup money to pick up the pieces being 100% sure that the company will rebound soon enough.

I might replace some mutual funds with ETFs, depending on how long-term I will be choosing the mutual funds for. We'll see about that. With a 100 free trades from Firstrade, it is that much more tempting to use ETFs.