1. Determine their initial target portfolio monetary goal.

An easy method is to take their emergency fund goal and divide it by the percentage of assets in cash and bonds (which are generally used for your emergency fund).

If their goal is 3 months income ($15,000) and their target allocation for cash and bonds is 25%, their target fund size would be ($15,000/.25) or $60,000.

2. Determine asset classes and target percentages.

Multiply their asset class percentages by their initial target portfolio size to get their asset-allocation targets.

Emergency fund (25% * $60,000) $15,000
Note that your first allocation will always produce your target Emergency Fund amount

U.S. (55% * $60,000) 33,000

International (10% * 60,000) 6,000

Small cap (10% * 60,000) 6,000

Total portfolio target $60,000

3. Calculate the target amount for each asset class in both the taxable and retirement accounts.

Take the target weight of each asset in both the taxable and retirement side multiplied by the target portfolio size to get the target asset size.

For example, Bill and Suzie decided that 4% of their small cap allocation of 10% is in the taxable accounts, with the remaining 6% in their retirement accounts. Their dollar allocations would be:

Taxable: 4% * $60,000 = $2,400

Retirement: 6% * 60,000 = $3,600

4. Research potential candidates for financial assets and select the assets most likely to deliver the return you need.

Using the principles discussed earlier, Bill and Suzie would select the assets they would purchase to gain exposure to their chosen asset classes.

For example, if Suzie and Bill decided that their Core U.S. allocation was to be the Vanguard S&P 500 Index fund, their dollar allocations to Vanguard would be:

Taxable: 35% * $60,000 = $21,000

Retirement: 20% * 60,000 = $12,000

5. Purchase the assets and compare the actual portfolio against the target portfolio.

1. Purchase the emergency fund and food storage.
2. Purchase core assets next. You can purchase either your taxable assets first, your retirement assets first, or purchase both at the same time.
3. Then purchase diversified assets.
4. Then purchase opportunistic assets (optional).