Showing posts with label rebalancing your portfolio. Show all posts
Showing posts with label rebalancing your portfolio. Show all posts

Wednesday 11 July 2012

Tactical dynamic asset allocation or rebalancing based on valuation, sounds easier than is practical


Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.  


Tactical dynamic asset allocation or rebalancing involves selling at the right price and buying at the right price based on valuation.  


Assuming you can get your buying and your selling correct 80% of the time;, to get both of them right for a profitable transaction is only slightly better than chance (80% x 80% = 64%).  


Except for the extremes of the market, for most (perhaps, almost all of the time), for such stocks, it is better to stay invested (buy, hold, accumulate more) for the long haul.




Ref: My 18 points guide to Successfully compounding your money in Stocks

Thursday 12 April 2012

The Best Portfolio Balance

The Best Portfolio Balance
April 11, 2012

There isn't one. Wasn't that easy?

In the same manner, there isn't one diet that fits everyone. Depending on your body fat makeup and what you're trying to accomplish (increasing endurance, building muscle, losing weight), the proportions of protein, fat and carbohydrates you should consume can vary widely.

SEE: Introduction To Investment Diversification

Balancing Act
Thus it goes for balancing your portfolio. A former client of mine once stated that her overriding investment objective was to "maximize my return, while minimizing my risk." The holy grail of investing. She could have said "I want to make good investments" and it would have been just as helpful. As long as humans continue to vary in age, income, net worth, desire to build wealth, propensity to spend, aversion to risk, number of children, hometown with its concomitant cost of living and a million other variables, there'll never be a blanket optimal portfolio balance for everyone.

That being said, there are trends and generalities germane to people in particular life situations; many investors don't balance in anything approaching the right mix. Seniors who invest like 20-somethings ought to, and parents who invest like singles should, are everywhere, and they're cheating themselves out of untold returns every year. 

Fortune Favors the Bold
If you recently graduated college – and was able to do so without incurring significant debt – congratulations. The prudence that got you this far should propel you even further. (If you did incur debt, then depending on the interest rate you're being charged, your priority should be to pay it off as quickly as possible, regardless of any short-term pain.) But if you're ever going to invest aggressively, this is the time to do it. Yes, inclusive index funds are the ultimate safe stock investment, and attractive to someone who fears losing everything. (The S&P 500's minimal returns over the last 13 years is a testament to its "safety.") Still, why not incorporate a little more unpredictability into your investments, in the hopes of building your portfolio faster?

So you put it all in OfficeMax stock last January, and lost three-quarters of it by the end of the year. So what? How much were you planning on amassing at this age anyway, and what better time to dust yourself off and start again than now? It's hard to overemphasize how important is to have time on your side. As a general rule of life, you're going to make mistakes, and serendipity is going to smile on you once in a while. Better to get the mistakes out of the way early if need be, and give yourself a potential cushion. "Fortune favors the bold" isn't just an empty saying, it's got legitimate meaning.

Retirement Years
Fortune doesn't favor the reckless, however. If you're past retirement age and think that going long on mining penny stocks on the TSX Venture Exchange will make you wealthy beyond measure, well, hopefully at least one of your children has a comfortable couch for you to sleep on.

Start with the three traditional classes of securities – in decreasing order of risk (and of potential return), that's stocksbonds and cash. (If you're thinking about investing in esoteric like credit default swaps and rainbow options, you're welcome to sit in on the advanced class.) The traditional rule of thumb, and it's an overly simple and outdated one, is that your age in years should equal the percentage of your portfolio invested in bonds and cash combined. (Which is why George Beverly Shea has -3% of his portfolio in stocks.)

It's unlikely that there is someone on the planet who celebrates his birthday every year by going to his investment advisor and saying, "Please move 1% of my portfolio from stocks to bonds and cash." Besides, life expectancy has increased since that axiom first got popular, and now the received wisdom is to add 15 to your age before allocating the appropriate portion of your portfolio to stocks and bonds.

That the rule has changed over the years should give you an idea of its value. The logic goes that the more life you have ahead of you, the more of your money should be held in stocks (with their greater potential for growth than bonds and cash have.) What this neglects to mention is that the more wealth you have, irrespective of age, the more conservative you can afford to be. The inevitable corollary might be less obvious, and more dissonant to cautious ears, but it goes like this: the less wealth you have, the more aggressive you need to be.

The Bottom Line
Investing isn't a hard science like chemistry, where the same experiment under the same conditions leads to the same result every time. Investing's most exciting chapters are still being written, and the one that states that there are exactly three possible portfolio components needs to be put through the shredder. Real estate is neither stock, bond nor cash equivalent, and the same goes for precious metals. The former can increase your wealth rapidly with sufficient leverage, and the latter can maintain your wealth regardless of whether inflation or deflation besets the underlying currency that you conduct transactions in. As for the best portfolio balance, it's the one that fits the criteria you determine, but only when you assess your unique situation and regard your capacity for risk and reward with the utmost frankness.


Read more: http://www.investopedia.com/financial-edge/0412/The-Best-Portfolio-Balance.aspx#ixzz1rmK2PKWi

Saturday 3 March 2012

Substantial rise in the market: Practical questions and psychological problems confronting the investors


A serious investor is not likely to believe that the day-to-day or even month-to-month fluctuations of the stock market make him richer or poorer.


But what about the longer-term and wider changes in the stock market? Here practical questions present themselves, and the psychological problems are likely to grow complicated.

A substantial rise in the market is 
  • at once a legitimate reason for satisfaction and 
  • a cause for prudent concern, 
  • but it may also bring a strong temptation toward imprudent action.

Your shares have advanced, good!  You are richer than you were, good!
  • But has the price risen too high, and should you think of selling? 
  • Or should you kick yourself for not having bought more shares when the level was lower? 
  • Or— worst thought of all—should you now give way to the bull-market atmosphere, become infected with the enthusiasm, the overconfidence and the greed of the great public (of which, after all, you are a part), and make larger and dangerous commitments
Presented thus in print, the answer to the last question is a self-evident no, but even the intelligent investor is likely to need considerable will power to keep from following the crowd.

It is for these reasons of human nature, even more than by calculation of financial gain or loss, that we favor some kind of mechanical method for varying the proportion of bonds to stocks in the investor’s portfolio.
  • The chief advantage, perhaps, is that such a formula will give him something to do. 
  • As the market advances he will from time to time make sales out of his stockholdings, putting the proceeds into bonds; as it declines he will reverse the procedure. 
  • These activities will provide some outlet for his otherwise too-pent-up energies. 
  • If he is the right kind of investor he will take added satisfaction from the thought that his operations are exactly opposite from those of the crowd.*




* For today’s investor, the ideal strategy for pursuing this “formula” is rebalancing.

Sunday 11 December 2011

Why is it important to regularly review your share portfolio?

Why is it important to regularly review your share portfolio?

Answer:  To determine whether your investment goals are being met.


You need to review your portfolio regularly to ensure your investment goals are being met.  To maximise your investment potential, you will want to be proactive rather than being forced to react to market trends.  Speculative stocks will need to be monitored more frequently than blue chip stocks, but even the latter need regular review to ensure they are serving the purpose for which you bought them.

Wednesday 7 December 2011

Sell bonds and buy equities? Maybe not

Sell bonds and buy equities? Maybe not
Written by Celine Tan of theedgemalaysia.com
Tuesday, 06 December 2011 09:40



KUALA LUMPUR: Which was the best asset class in the first three quarters of 2011?

Given the volatility on Bursa Malaysia’s Main Board, it may not be surprising that the local bond and money-market funds performed better than equity funds in the one-year period ended October 28 (see table), but still, the institutional investors were caught flat-footed.

“This [underperformance of equities] was not expected early in the year. But seeing how the Greek sovereign debt issue has remained unresolved and the situations that followed the US’ credit rating downgrade, the underperformance is not a surprise [now],” says Koh Huat Soon, chief investment officer of Pacific Mutual Fund Bhd.

Similarly, Azian Abu Bakar, executive director of Apex Investment Services Bhd, did not expect bond portfolios to outperform their equity counterparts until Bank Negara Malaysia (BNM) hiked interest rates and the macroeconomic situations in developed economies kept “turning turtle”. BNM hiked the overnight policy rate by 25 basis points to 3% in May.

Throughout the year, the local bourse’s performance was mainly news-driven. “The poor performance of equity funds was due to major sell-offs in 3Q2011, as investors sought refuge and shifted to safer assets such as bonds and money-market instruments,” says Yeoh Mei Kei, research analyst at Fundsupermart.com.

Koh says the local bond market benefited from foreign investments while Azian attributes demand for sukuk issued during the year. For both, the interest-rate hike in May was also a factor.

The equity funds’ performance was attributed to the bearish sentiment on the local equity market throughout the year, says Azian. “Generally, the performance of the banking sector affected conventional equity portfolios. Islamic equity portfolios were impacted by the doldrums in the plantation sector and, to some extent, the construction sector.”

What to do?
Everyone has heard of the old adage — what goes up must come down. “We advise investors — be they conservative or aggressive — to rebalance their portfolios from winning positions [bond and money-market funds] to losing positions [equity funds],” says Yeoh.

“This prevents investors’ portfolios from [suffering a] ‘style drift’, which means a divergence from the original investment objective or investment style. Also, it forces investors to be disciplined and to manage their emotions when investing.”

Koh suggests switching to European equities. “The eurozone had bought more time to resolve their crisis. This region managed to avoid a messy default in the near term. Since many equity funds are holding cash, the potential for short-term gains is there.”


But this move requires a stomach for risk and constant surveillance of the situation in Europe. Key risks — such as the success of austerity measures in countries such as Greece and inadequate amounts of bail-out funds — remain.


This means that conservative investors should hold on to their performing bonds and money-market funds as equities are likely to remain very volatile, given the uncertainly in the global economy. Institutional investors are also likely to take their time before acquiring equities.

“Most asset managers have implemented trading or benchmarking tactics. This conservative approach is taken in lieu of the global uncertainty,” says Azian.

Tuesday 11 January 2011

Does your portfolio need rebalancing?

Does your portfolio need rebalancing?
If you can't remember the last time you reviewed your investments, now might be a good time to give your portfolio an overhaul

If you have locked your investments away in a drawer, there is a good chance that they are poorly matched and that your portfolio is unbalanced.
Should this be the case, you will need to act to ensure your investment goals are on track. No one can predict what will happen and the best way to avoid boom-and-bust cycles is to make objective decisions that ignore fashions.
Diversification and getting the balance right are vital. Fail to achieve that and it is easy either to buy the wrong kind of investment or to create a portfolio that is vulnerable to shocks.
"Rebalancing is one of the key factors in successful long-term investment performance, probably almost as important as asset allocation itself," said Adrian Shandley of Premier Wealth Management. "As an investor, you need to set your asset allocation at the outset to reflect your attitude to risk and your desired outcomes."
If you have not continually rebalanced, your original asset allocation will almost certainly have become distorted e_SEnD and you could find yourself taking either too much or too little risk.
"In the terrible bear markets of 2007 and 2008 a continually rebalanced portfolio would have produced positive returns by the middle of 2009, whereas a portfolio that was not rebalanced would still have been in deficit at the end of 2010," Mr Shandley added.
Sadly, too many investors realise they have poor asset allocation when it is too late, which is why prevention is definitely better than cure. Building a portfolio is a question of managing risk versus return.
Rob Burgeman, a director of investment management at Brewin Dolphin, the wealth manager, added: "The best defence against this is a well-diversified portfolio of assets that is suitable for the objectives that you are trying to achieve." Thus, the pension portfolio of a 40-year-old is likely to be very different from that of someone in their mid-sixties looking for income in retirement e_SEnD and rightly so.
Attitude to risk is also a key consideration. The sensible investor takes into account the amount of risk they are able to tolerate, both emotionally and psychologically and in terms of their individual needs. It is therefore vital to understand the different levels of risk inherent in various types of investment. Overly concentrating on a single asset class will increase the risk to a portfolio unnecessarily.
So what are the issues that investors should be considering this year? "On the one hand, interest rates at 350-year lows make holding large cash deposits unattractive. On the other, tax rises and cuts in government spending are likely to have a deflationary effect on the economy," Mr Burgeman said.
He continues to favour equities e_SEnD particularly the blue chips, which tend to have international exposure - and emerging markets. He is also warming to US shares, while he has been advocating a reduced exposure to government bonds.
"Europe, too, remains a concern as the contagion could spread further within the region. We remain underweight here. As far as Asia and other emerging markets are concerned, valuations are not expensive by historic standards and, while these regions are likely to pause for breath a little, we remain strategically overweight there."
Perhaps not surprisingly given the uncertain global outlook, many professional investors are taking a cautious stance - and that includes holding gold despite its terrific run. They are also wary of government bonds in light of quantitative easing and the prospect of inflation.
"We favour high-yield and strategic [bond] funds, such as Aegon High Yield and Cazenove Strategic Bond, over government and investment-grade bond funds," said Gary Potter of Thames River Capital, the fund manager.
Marcus Brookes, who manages fund portfolios at Cazenove, is investing in funds that have lagged the market over the past year, including Invesco Perpetual Income, J O Hambro UK Opportunities and Majedie Global Focus. He has trimmed his exposure to emerging markets, given their performance over the past three years.
"Gold is an asset that we have held for two years and, while it has had a strong run over the course of 2010, we still feel it warrants a place in the portfolios for the time being," Mr Brookes added.
Many financial advisers suggest that investors should think of their portfolios as football teams.
"I'd look to dump out gilt-type funds and not be tempted by the hype about absolute return funds, and fill the midfield with international stars like Angus Tulloch (First State Asia), Graham French (M & G Global Basics) and Robin Geffen (Neptune Global and Neptune Russia)," said Alan Steel of Alan Steel Asset Management. Mr Steel reckons that small-cap funds (Standard Life's is his favourite) and commodity funds such as J P M Natural Resources will also score for investors.
However, Mr Steel's bullish tone is set to change in a few months' time when he might change tactics and move to a more defensive strategy.
"If you build up a good lead by the summer I'd go more defensive with the big caps." Again, Neil Woodford of Invesco Perpetual will make his team sheet.

Thursday 30 December 2010

FTSE Bursa Malaysia KLCI closed for the year at 1,518.91







52wk Range:1,072.69 - 1,531.99


Interesting graphs of FTSE Bursa Malaysia KLCI over different periods.  Do you have a strategy to protect your downside and to profit from the upside, from the volatility of the stock market?

Warren Buffett lamented that many business schools are teaching the wrong stuff to their students.  He is of the opinion that basically to be a good investor, you need to be taught two topics in great detail.

Firstly, you need to have a very thorough understanding of how to value various assets.  Secondly, you need to understand the behaviour of the stock market, so that you can take advantage of it and not fall folly to it.

This year has been another very rewarding year for my investing.  My portfolio has shown good returns.  A worrying point now is that in my portfolio of stocks, twenty-two stocks have huge gains and two stocks have small losses.  The two small losses were in stocks bought in 2007 and they constitute a very small proportion of the overall portfolio.  It wasn't a surprise that most of my stocks would be showing gains, especially those that have been in the portfolio for a very long time and bought at regular intervals (dollar cost averaging).  However, when almost ALL the stocks bought in recent years showed gains from their cost prices, one has to be apprehensive of the stock market.

Many geniuses are born in a bull market, so the saying goes.  Therefore, one may assume that either one is a genius (don't be fooled) or perhaps the market is too gregarious and optimistically overpricing most stocks (one can be easily and unknowingly fooled by this too).

Perhaps, with the New Year approaching, a re-look at my portfolio with view to re-balancing is not inappropriate.

Happy New Year to all.

Saturday 6 November 2010

It's Time to Take Some Profits

GETTING GOING
OCTOBER 17, 2010

The stock market has had a heady few weeks. The Dow Jones Industrial Average has mustered above 11000 for the first time since April -- and it has managed to stay there through the early part of the third-quarter earnings season.
[sun1017gg]Sean Kelly
But the swift rise of the market -- the Dow is up about 10% from its Aug. 31 close -- comes against a backdrop of somewhat unsettling news. The jobless rate remains stuck just below 10% with little respite in sight. The housing market is still very weak, and is enduring further shocks as lenders' foreclosure problems keep getting worse. The political situation seems a bit chaotic. And the global recovery is uneven enough that the Federal Reserve is thinking of yet more extraordinary measures to get things rolling.
Even with those headwinds, the mood among stock investors as we near the end of October is surprisingly upbeat. Third-quarter earnings are coming in better than expected and optimism about the Fed's latest extraordinary plan -- quantitative easing part two, or QE2 -- is rampant in the stock market. We entered the dreaded September-October period in fear; we are leaving it with bliss breaking out.
Such sudden shifts in sentiment, especially with uncertainty on the rise, makes me a little queasy. Given the widespread gains, it might make sense to examine your portfolio now with an eye toward rebalancing, rather than wait for the end of the year. In so doing, you may want to pare back some of the bigger winners and salt away the gains for the coming year.
Here's where things get interesting. The big winners this year have come from several corners, and not just in the stock market. In the U.S., small-cap stocks have outperformed bigger stocks, with various small-cap indexes up 10% to 14% year-to-date. Outside the U.S., emerging markets, especially in Asia, have recorded robust gains. In other words, riskier stock investments seem to have done better than the safer, blue-chip shares.
Away from stocks, other assets also have had decent years. The Barclays Capital U.S. Government Bond index is up 9.4% year-to-date. The Barclays Capital U.S. Aggregate Bond Index is up 8.6% this year. Gold is up about 30%; oil has gained 10%; and food commodities have done well. The Dow Jones-UBS Commodity Index is at a 52-week high. The dollar had a great start to the year, but it has retreated and is down sharply against the yen and up a smidge against the euro.
The one asset class that hasn't done very well this year is cash. Interest rates for cash deposits are extremely low, reflecting the Fed's policy of record-low short-term interest rates. So, in the spirit of rebalancing, where we take from winners and add to the laggards, any portfolio trimming should get parked in cash. It feels terrible to park money in cash at these rates, but there's always something comforting about capital preservation.
In analyzing which winners to winnow, bonds have had a strong run for several years. Some believe that the bond market could be facing bubble-like trouble. Earlier this month, Mexico sold a 100-year bond with a yield of 6%, a highly unusual move that fed talk of a bubble. And corporations have gotten rock-bottom yields, too, with International Business Machines recently selling three-year bonds with a yield of 1%. All of these unusually low yields in the bond market have amplified the bubble chatter. If you've got an outsized bond position, trimming some winnings before year-end makes sense.
In the stock market, blue-chip stocks have underperformed. High-dividend-paying blue chips have grown in popularity recently, but these stocks have still trailed riskier sectors such as small caps, real-estate, transportation and Internet shares. Winnings here should be trimmed probably in the small-cap and real-estate areas first, with an eye toward maintaining (or even adding to) blue-chip positions.
Commodities, which should be less than 10% of your total portfolio, have had yet another good year. I've written critically about gold from $1,000 an ounce to $1,300 an ounce. Nothing like being wrong. Despite the gains, it's hard to see gold going lower when the euro, dollar and yen all want to be weaker.
If commodities have risen above 10% of your total portfolio, you should consider reducing the biggest gainers, which probably would include gold. But given the strong year for stocks and bonds, your commodity position may not require any slimming.
The main reason to rebalance is to keep your overall long-term strategy in place. Usually this means something simple, such as selling highflying bonds and adding to underperforming stocks. But so far this year, a lot of asset classes have done well, making the rebalancing exercise somewhat thornier.
But we live in somewhat thornier times. The Fed is preparing for QE2, which means it will essentially print more money, and central bankers are talking about a desire for more inflation. These are two things that would've been very difficult to imagine just three or four years ago. And they also are a bit contradictory.
Given the still extraordinary nature of our times, banking some winners might make the holiday season that much more enjoyable.
http://online.wsj.com/article/SB10001424052702304898004575556753777592096.html
Related:

The Anxiety of Selling

Taking Profit and Reducing Serious Loss

It's Time to Take Some Profits

Saturday 17 April 2010

The China bubble: don't predict, prepare


GREG HOFFMAN
April 16, 2010 - 9:42AM

Even dyed-in-the-wool, bottom-up stockpickers like me have to accept one inalienable fact; economies and markets are now so interconnected as to be systemically linked; a problem in one area of the system rapidly moves to another.
That fact does not demand predictions as to what will go wrong, when or where. But it does imply preparation for scenarios that would impact your investments. Don't predict, prepare.
For Australian investors, leveraged as we are to the China growth story, that preparation should include an assessment of how your portfolio would stand up were China's growth to slump, if only temporarily.
''Up ahead they's a thousand' lives we might live,'' counselled Ma in John Steinbeck's The Grapes of Wrath, ''but when it comes, it'll only be one.'' And so it is with our portfolios.
It's prudent not to weight your portfolio wholly towards any single possible ''life''. And, several factors are leading The Intelligent Investor's analysts to recommend investors consider building some protection into their portfolios.
These factors include the fact that many previously unloved stocks are now back in vogue, the possibilities of China's growth slowing, inflation and the substitution of private for public debt by governments around the world.
I'd encourage you to consider your own exposure to currently fashionable cyclical stocks like One.Steel, Seek and Amcor. If you find you're a bit heavy, then it might be a reasonable time to think about re-weighting your portfolio.
Bolstering your cash balance is a great way to build capital stability and also maximise your flexibility for any future dip or downturn in the market; the proverbial financial ''dry powder''.
We're also looking to build in another layer of protection through careful re-investment. A number of top-class blue chip stocks have been left behind by those rushing back into cyclicals and some of these might make great additions to a long-term portfolio.
Current stock recommendations
Stocks such as Foster's Group, Santos and Insurance Australia Group are on our current shopping list, as are several quality stocks with significant offshore income (such as QBE Insurance and Sonic Healthcare).
These stocks offer the potential for significant gains if the Aussie dollar were to take a tumble for any reason (bear in mind that a little over a year ago, our dollar was fetching less than 70 US cents).
We also have a few carefully-selected infrastructure stocks on our buy list as well as a property developer or two. We expect the latter to provide more cyclical oomph if Australia manages to skirt any major economic setbacks from here. 
By combining a higher cash balance with a re-weighting towards less cyclical stocks, we hope to maintain a sensible equilibrium between offence (should markets continue higher) and defence. But how you react from here will be crucial.
We're now recommending investors begin changing their stance in the expectation that further gains will be much harder fought. A number of commentators seem confident that the Australian business sky is blue as far as the eye can see.
It's an increasingly fashionable idea and we've been around long enough to know that in financial markets, danger can lurk in such trendy consensus views.
Our preference is to begin buttressing our portfolios for any potential bumps in the road. Our weapons of choice are increased cash holdings and a higher weighting to more stable, defensive businesses, which currently strike us as offering better value than the more expensive and volatile cyclicals.
This article contains general investment advice only (under AFSL 282288).
Greg Hoffman is research director of The Intelligent Investor



Sunday 28 March 2010

Asset Allocation and Economic Hedging in Various Economic Environment


Asset Allocation

This is also referred to as economic hedging and can be defined as a conservative method of diversifying assets so they will react different under various economic conditions.

Successful investing can be based on 4 key characteristics as follows:
  • Discipline
  • Patience
  • Historical Prospective
  • Common Sense Strategy
Reasons for using asset allocation:
  • History repeats itself
  • No one can predict the future – not even the experts
  • Comfort in knowing you have not painted yourself in a corner
  • Acts as a hedge against financial risks you cannot control
To protect against risks, the risks must first be identified and then investments set up to diversify around them. Listed below are the main types of economic environments.
  • Hyper Inflation (100%+/year)
  • Double Digit Inflation (10%+/year)
  • High Inflation (5 to 9%/year)
  • Normal Inflation (2 to 4%/year)
  • Recession
  • Depression
Now lets look at a couple examples of how various investment types do in these differing environments.

In a depression we see the following:
  • Stocks go way down (85-90%)
  • Real Estate – Also tends to go down
  • Interest Rates – drops to very low rates
  • Unemployment – this goes way up
  • Property – material things tend to lose value
  • Bonds – These do well, as bonds tend to vary inversely with interest rates.
Recommended investment in a depressed economy then would be high quality, intermediate term (2-4 year), discounted corporate bonds.

On the other hand in a Hyper-Inflation economy the situation would be completely different.
  • Stocks – do well for a while, then collapse
  • Real Estate – depends, because it is often bought with debt
  • Gold – this has done well in keeping its value in hyper-inflation conditions
Of note, the last time the US was in a hyper-inflation economy was during the civil war. However several other countries have been in this situation in recent years.

Now that we know how the environment can affect different investments, let's look at what investments are best for each environment and how to protect your investments in these changing economic times with economic hedging.

http://www.nassbee.com/wealthy/asset_allocation.html



Economic Hedging

Following our discussion on asset allocation, below is a list of the best types of investments for each type of environment.

Economic EnvironmentBest Investment
Hyper InflationGold
Double Digit InflationReal Estate
High InflationReal Estate / Stocks
Normal InflationStocks
RecessionCash
DepressionHigh Quality Corporate Bonds

How you will allocate your assets will depend on if you are in or near retirement as well as other personal circumstances. Below are two basic allocation structures. You should review your own needs to decide what type of allocation meets your needs best.

Aggressive
CashBondsREITStocksGold
15-20%15-20%30%30%2-5%

Retired
CashBondsREITStocks
25%25%25%25%

(These percentages can be vaired slightly to fit in 2% Gold for better hedging.)

Over the past 30 years, average yields for these types of investments has been about as follows:
InvestmentAvg Yield
Cash4%
Bonds7%
REIT8%
Stocks10%

For the retired plan then this would have yielded a safe 7.25% annual return. For the aggressive investor it would closer to 8%.

Rebalance

In order to keep the advantage of asset allocation you should rebalance your investments every year. When this is done is not important as long as it is done at least once per year. By taking profits from the investment types that are doing well and putting the money in those that are down, you are buying low and selling high without any emotional input that may cloud your decision. Rebalancing should then be done as follows:
  • Periodically (at least once per year)
  • If there is a major change in your life
  • If there is a major change in the financial market