U.S. large-cap stocks
Why: We expect earnings growth in the S&P 500 to reach 8% to 10% this year.
Vehicle: iShares S&P 500 Index (IVV ) or SPDR S&P 500 ETF Trust (SPY): liquid and cheap
U.S. small-cap stocks
Why: After years of uncertainty surrounding commercial lending and credit in general, money can be borrowed now.
Vehicle: Vanguard Small-Cap ETF (VB)
Real estate investment trusts
Why: An allocation here increases cash flow and diversification. Plus, the gradual healing of the commercial-banking system helps the entire real estate market in the United States.
Vehicle: Vanguard REIT ETF (VNQ)
International developed markets
Why: This year, we started building back exposure as Europe and Japan perk up. Expect more exposure over the next year.
Vehicle: Vanguard Total International Stock Index ETF (VXUS)
Why: We like to focus on smaller high-dividend-paying companies when investing in emerging markets, and expect them to outperform this year versus the S&P 500.
Vehicle: WisdomTree Emerging Market Small Cap Fund (DGS)
Investment-grade bonds (public and privately issued)
Why: No matter who says Treasuries are in a bubble, when markets hit the skids, investors turn to U.S. debt.
Vehicle: Vanguard Total Bond Market ETF (BND)
U.S. corporate bonds
Why: We want to tactically overweight the corporate side of intermediate bonds rather than a broad index that is government-heavy.
Vehicle: iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD)
U.S. junk bonds
Why: Most of the time, junk bonds are a bad bet, but now may be one of the few times junk will go down as paying off.
Vehicle: iShares iBoxx $ High Yield Corporate Bond Fund (HYG)
Why: We always build in 2% cash in normal times. If risk starts to become elevated, it can go higher.
Vehicle: TD Ameritrade Federal Deposit Insurance Corp.-insured deposit account