Editor's note: Is your portfolio properly allocated?

We wouldn't bet on it.

But ignoring this idea can easily ruin your retirement... So we urge you to read the following essay carefully.

Today's Masters Series essay is adapted from the February 25, 2011 Digest. In it, Porter lays out a sample guideline for a reasonable portfolio allocation. And while the exact percentages he cites don't necessarily match his current views, the general concepts he discusses remain just as true today as when he first wrote it...

How to Take Control of Your Portfolio Immediately

By Porter Stansberry, founder, Stansberry Research

Assume you're a 55-year-old with a $100,000 portfolio. You're in good health, will work full time for another 10 years, and expect to live until you're roughly 85. You'll save $50,000 per year until you retire.

If you're able to earn 12% a year (after taxes) on your portfolio, you'll have $1.1 million by the time you celebrate your 65th birthday and leave the workforce.

Now, let's get into the details of my suggested neutral allocation...

1. Put at least 50% of your assets in fixed income.

That should include 30%-40% in corporate bonds bought at a wide discount from par value, where the yield to maturity is at least 10%. This should include 10%-20% in cash and cash-like holdings, where your annual yield will be at least 10%.

The overwhelming majority of our readers will never allocate this much of their savings to fixed income, no matter what I tell them or how many years in a row we demonstrate how easy it is to make stock-like returns with bonds.

Learning to invest in and value corporate bonds is the single most important thing we could ever teach you. You may feel bonds aren't right for you right now. But sooner or later, you're going to change your mind. And the sooner you do, the better off you will be.

Assuming you've got a discounted bond/cash portfolio that is producing 10% a year in income, it's not a big stretch to assume your total returns will average 14%-16%, including capital gains. If you're earning 16% a year on half your portfolio, then your total portfolio return is already 8%. You're two-thirds of the way toward your goal.

2. Place no more than 30% of your assets in the stocks of regular operating companies.

This part of your allocation should focus on dividend-paying, Global Elite, and capital-efficient stocks – the kind of high-quality companies recommended in several of our letters. Ideally, these will be companies you will hold on to for decades because they continually raise their dividend payments.

To hold these stocks safely for a long, long time, you'll need to understand how to adjust your trailing-stop losses to account for dividend payments. It's easy to do.

Rather than use a trailing stop loss (which might force us to sell purely based on a stock price that went up far too high and then fell back to normal), we use a simple stop loss on these positions, adjusted for the dividends we've been paid.

It's critical to understand that once a dividend-paying stock is yielding 10% or better, the normal trailing stop rules don't apply.

Here are your value rules when it comes to buying stocks in this 30% allocation, blue-chip category:

1. Don't pay more than 10 times cash earnings for operating companies.
2. Don't pay more than book value for asset-based companies.
3. Get at least 5% a year in dividends or share buybacks, on average. And always favor cash-dividend payers.

Assuming you build these positions over time, you'll be earning at least 5% a year in dividends. If you only buy when there's value in these kinds of stocks, your 10-year average total return should be around 15% annually. If you focus only on the safest values and use trailing stops, your returns are likely to be substantially higher – closer to 30% annually.

But to be conservative, let's use the smaller figure. If you're able to earn 15% annually on high-quality value stocks with 30% of your portfolio, that's another 4.5% of the total portfolio return you'll need to accomplish your goal.

OK... Now we've used up 80% of our capital between fixed-income investments and high-quality value stocks. We anticipate earning around 15% a year with each category, with the knowledge the total return in the equity portfolio is likely to be much higher.

It's extremely unlikely we'll ever lose money in either of these two categories if we're disciplined about when we buy these kinds of securities and use trailing stop losses on the equities.

Thus, using only 80% of our capital, we can achieve the 12% total returns we need to retire comfortably. That leaves us with 20% of our capital to speculate with... where we have a chance to achieve vastly higher returns...

3. Take this 20% and focus on the deeply cyclical areas of the market.

Sectors like precious metals, real estate, energy, semiconductors, volatility (selling put options), etc.

Use money from this area of your portfolio to buy one or two "moon shots" each year.

Remember this: You'll need to let your winners ride a long way to overcome the losses you'll inevitably suffer as a speculator. And if you refuse to cut your losers short, you'll eventually lose everything in this category. Speculation is a far different animal than investing. Few people can do both well.

My advice? Until you've learned to be a successful investor, don't try to speculate. You'll be far more successful with your speculations once you fully understand the principles of sound investing.

So this is your basic allocation: 50% fixed-income/cash, 30% high-quality equities (with a focus on dividend payers), and 20% speculations, including short sells.

I recommend keeping a file card on every position you initiate. Write down why you bought it and what you expect to earn. Write down what would make you sell it, including your trailing stop loss.

Make sure you can describe the business model of every business you own to a friend, without looking at notes. Review your notes once a month.

You'll have a very good understanding of what you own, why you own it, what the risks are and what you're supposed to earn. You'll be in charge. It's not that hard.

Regards,

Porter Stansberry

Editor's note: Porter's recommended asset allocation is a great start for many beginner and intermediate investors. But if you're truly looking to take the next step in your investing education, you MUST tune in to the event we're hosting on Tuesday at 8 p.m. Eastern time.

There, you'll hear whether Porter, Dr. David "Doc" Eifrig, and Dr. Richard Smith believe you should be buying stocks today... or whether high-yield bonds are a better bet. You'll hear about Porter's personal gold strategy... which newsletters he recommends following right now... and Porter's No. 1 investing strategy in today's market. Plus, as an added bonus, you'll have a chance to win one of two $5,000 prizes, simply for showing up. Reserve your seat here.