[jively]

I agree with DesertCat that you definitely need the discipline to stick with your allocation. In fact everyone needs that.

Second, consider 3 allocations.

Allocation A:
20% US Large Cap
20% US Large Cap Value
10% US Micro Cap
10% US Small Cap Value
10% REITs
20% International (small and value tilted if possible)
10% Emerging Markets (small and value tilted if possible)

Allocation B:
12% US Large Cap
12% US Large Cap Value
20% US Micro Cap
20% US Small Cap Value
6% REITs
18% International (small and value tilted if possible)
12% Emerging Markets (small and value tilted if possible)

Allocation C:
100% US Small Cap

Allocation A is a globally diversified portfolio that is small cap and value tilted. It should have a very good average return, and the standard deviation is pretty low for the aggressiveness.

Allocation B is more small cap and value tilted, and has more emerging markets. It should have a higher return than Allocation A, and is still globally diversified, so the standard deviation, although higher than Allocation A, is not *that* much higher.

Allocation C is what you are looking at. It is undiversified. It *might* have a slightly higher expected return than Allocation B, but the standard deviation is much higher.

Put another way, both Allocation A and Allocation B should be near the efficient frontier, and Allocation C is not.

I didn't read the article either (I may look at it later), but I like Allocation B a lot more than Allocation C, even if it gives up a slight average return. You are much less likely to have a -30% annual return with Allocation B than with Allocation C, so you are more likely to stick with it in a bad year. And as DesertCat said, sticking with the allocation is extremely important for long-term investment results.

-Tom

P.S. I have a high risk tolerance, and am going to use Allocation B for my own money when I rebalance next month.