Next step is use the "calculators" on whichever fund company you choose to determine an allocation. If you want to do a quick one by hand, I created my own calculator below.

The allocation will be % stocks, % bonds, % cash. It will further break this down to % large cap, % small cap, % foreign, etc...

The allocation is "created" based on you honestly answering questions.

Simple questions like:

How long do you have to retire?
If you invested in soemthing and it lost 10% in one year, what would you do? Lost 10% in one day, what would you do?
If you invested in something and it lost 25% in one year, what would you do? Lost 25% in a day what would you do?

The reverse is also useful... 10% yearly gain... 10% daily gain... 25% yearly gain... 25% daily gain.
------------
Here is a simple way to allocate (if you want it)

Start with a

score1 of 0
score2 of 0

score1 is "minimum" % stocks you want.
score2 is "minimum" % bonds you want.


What is your age?
What age do you "expect" to retire? If you do not know, use 68.

What is difference of two above? This is "time".

For each decade in "time", add 20 to your score1. Round up for score one (so 11 rounds up to 2 decades).

If "time" is less than 20, then subtract time from 20. This is score2. Do not round for score 2.

The next step is what "return" do you want.

decide if you want more or less than an 8% return.
for every 2"points" you want above 8% return, add 20 to score 1.
for every 1 point at or below 8%, add 20% to score2


4 examples of calculator:

Ex a) 30 yrs to retirement, want a 10% return.

3 decades*20%=60%
10% return adds another 20%

This situation requires a minimum of 80% equities. How you allocate the other 20% is up to you.

Ex b) 30 yrs to retirement, want a 12% return.

3 decades*20%=60%
12% return adds 40% (4 points above 8% return, 4/2=2*20%=40%)

This situation requires 100% stocks to come close to a 12% return each year. This can be done for short amounts of time, I would not expect 12% returns to sustain over more than a 5-10 year period.

Ex c) 15 yrs to retirement, want an 7% return.

score1: 2 decades*20%=40% minimum equity
score2: time is 20-15=5%, plus 8% return adds 40% more to this (20% for 8% and 20% more for 7%)

So mimumum allocation for this example is 40% equity and 45% bonds. The last 15% can be moved to equities or bonds as you see fit.

Ex d) 15 yrs to retirement, want a 11% return.

score1: 2 decades=40% equity
10% return adds another 20% (within 2 points of 8%)
The additional 1% from 10 to 11 needs another 20% equity.

score1 total is 80% equity.

score2: 20-15=5%. 5% is the minimum amount of bonds.

The conclusions:

The longer you have, the more equities you should hold.
The shorter time you have, the more bonds you should hold. Anything less than 20 years to retirement should have a minimal amount of bonds (with this position growing larger closer to retirement).

If you want more than a 10% return, GOOD LUCK. 8% return is quite doable. 11% is pushing it. Using bonds for anything 8% or less is to increase probability of getting the desired return without adding on too much risk.

Long term return of equities is between 9-10%. There have been 10 year periods where equities have only returned 7%.

Long term returns of bonds is between 4-8%. There are periods where bonds do well for extended periods. It is possible to "time" these periods... entry point will be important (for example right now is a bad period to invest heavily in long term bonds). Low rates, inverted yield curve.

The next step will be dividing equities up to large cap, small cap, international etc...