The idea behind cap weighted indexing is that you duck the risk (and benefit) of issue selection by buying everything.
I've never seen anyone advocate choosing a stock/bond ratio to match the ratio of worldwide equity to worldwide debt. So implicitly at least, people tend to regard asset allocation differently from issue selection.
Hence the suggestion that asset allocation be left to the investor. But to what degree? For example, there's VT, that covers all the stock in the world. That can certainly take the place of two funds, VTSAX and VTIAX. It also takes away a degree of flexibility, but is that flexibility needed?
Maybe so; people may want finer granularity of their asset classes. So the first question is how does one define one's asset classes (finely or coarsely)? After that comes the question of picking the preferred mix.
The most obvious way to construct a portfolio having answered these questions is to pick broad based funds, one for each asset class, and then mix them in the desired proportions.
The difficulty in using all in one funds is that they must roughly match your preferred allocations. FFNOX, with its 8
5% share in equity just isn't going to do it for you if you want a 40/60 stock/bond mix.
Fund families address this by offering a suite of funds, each with a different allocation. Vanguard has its
LifeStrategy funds. If one of those works for you, great.
But there's still the matter of what classes of assets they're allocating. The Vanguard funds appear to be offering various admixtures of US stock, US bond, foreign stock, and foreign bond. But in reality, all their LifStrategy funds have the same ratio of US stock to foreign stock, so it's as if they simply used a single global stock fund. Likewise, all the funds have the same US/foreign bond ratio, so it's as if they used a single global bond fund.
Rather than offering a four-dimensional choice of allocations, you've just got a two dimensional offering - the only thing that varies is the ratio of global stocks to global bonds. 20/80, 40/60, 60/40, 80/20.
It's just impractical to offer more. Thinking about US stock/Int'l stock/US bond/foreign bond combinations, there could be:
10/10/10/70, 10/10/30/
50, 10/10/
50/30, 10/10/70/10, 10/30/10/
50, 10/30/30/30, 10/30/
50/10, 10/
50/10/30, 10/
50/30/10, 10/70/10/10, 30/10/10/
50, 30/10/30/30, 30/10/
50/10, 30/30/10/30, 30/30/30/10, 30/
50/10/10,
50/30/10/10
That's 17 funds right there. This is why you're not likely to find an all in one fund with your desired asset allocation. Thus all in one funds don't work unless you give up a large chunk of control over your asset allocations.
