Sunday Morning Coffee

Barron's had it annual "retirement" issue this weekend and candidly there was a little less meat on the bone than when they have done this in the past.

The best article had five snippets of varying length from five "risk experts" to "explain how to keep your nest egg from cracking."

The five were Peter Bernstein, Charlie Ellis, Barton Biggs, Jeremy Siegel and David Darst.

Berstein's post was a mix of general concerns and specific suggests that may not be very new but it was worthwhile to get is take.

Charlie Ellis focused on global diversification which is important but the post was very short.

Barton Biggs' post was totally worthless in the context of talking about retirement. He essentially spelled out why he likes tech right now. Even if he is 100% right about tech in the time horizon he is talking about it adds zero value for retirement planning.

Jeremy Siegel made a very articulate case for dividend investing which I generally believe in but I felt like it was a pitch for WisdomTree funds, which I am favorably disposed to. I would have liked to have read at least a little about his thoughts about emerging markets for the next few years. He has some interesting ideas about how money will flow over the next decade or two and even if you disagree with his conclusion on that his idea is worth exploring.

Last up was Darst who was the most useful. He was very specific about long term allocation and why it should include alternative assets and how the alternative assets portion should break down. Regardless of what you think of Darst his comments reflect of collective wisdom that I am willing to listen to (maybe not adhere to, but listen).

This leads me to an article on diversification from James Picerno which gives a couple of horror stories from the last couple of financial firm blow ups.

For some reason people seem to want to make big bets, do things that are very complicated (relative to their experience or the time they are able to commit to their portfolio) and allow emotion to do them in.

Investing does not have to be complicated. If you are a lazy portfolio person then you already understand simple.

If you make sector decisions then realize you are starting to take on risk when you let any sector get bigger than 20% of the portfolio. If you invest at the asset class level (emerging, commodities, REITs and the like) you have to know which of these is more volatile than broad market and not get carried away there. And if you don't know which asset classes are more volatile than the broad market then you should not be investing this way.

Many segments can drop 20% very quickly and it seems like 20% is a little past were emotion starts to ramp up. Anyone with 20% each in emerging and commodities has made this summer much bumpier than it needed to be.

If you invest in stocks you need to realize that any stock can go to zero. Owning a stock that goes to zero does not have to be a catastrophe if you don't own too much. Too much is in the eye of the beholder but if a stock you won went to zero over night what would the fall out be? If you have 20% in that stock you might set yourself back two years. If the weight was 2 or 3% you might not even set yourself back for a week.

As common sense as this stuff seems to be it gets away from many people. I view this in part as a lack of respect for the work done to accumulate the money. That one is potentially a big matzoh ball.