Sunday, December 14, 2008
Barron's had an article about reallocating retirement portfolios that have been derailed by the current bear market. There were comments from people citing statistics that have favored certain asset classes before and presumably these folks were relying on these statistics again. For example there was a quote about buying REITs when they yield more than ten year treasuries and that currently (per the article) REITs yield three times that of treasuries. The obvious question not addressed was whether the folks quoted bought REITs when the yield first surpassed the yield on treasuries. That would seem to be the implication and so as that was wrong how do we know that now it would be right?
A case was made for various segments of the fixed income market. It probably makes some sense to commit a little more to fixed income but the more I read about people suggesting the muni market the more I think something bad will happen there. A little bit of exposure to municipal paper is probably not a big deal but I am certain there are people pouring way too much in as they chase after yield. When has chasing yield ever been a bad thing (that is a sarcastic comment)?
As I mentioned the other day I think the yields in munis versus treasuries is warning of something bad and I do not want too much there in case that sentiment turns out to be correct.
There was one comment that was totally out of context that I wish they would have devoted more ink to which was someone's suggestion of having 20% in alternative assets which to the planner meant real estate, commodities and hedging strategies (ie absolute return). I don't know about 20% but I have been saying for ages that people need to learn more about this than they already know, being willing to commit a modest amount capital but I would say to avoid the private equity ETFs (I've written about these ETFs for TSCM and been down on them right out of the chute).
One subject that I think was left out, unless it was too subtle for me to realize, was investor behavior. Maybe more correctly called saver behavior. One consequence of the naughties (or if you prefer the oughts) may very well be that it will be more difficult for people of normal means to have successful retirements. There are several ways to mitigate this threat including saving more, spending less and working longer. No matter who you are your financial plan will benefit by doing those things (I realize not everyone can work longer). I'm not saying to necessarily stay at a job you dread, life is too short for that, but instead figure it out for yourself such than you can strike a balance with helping your finances, doing something you like and continuing to have purpose.
I get preachy about these things but quality of life is more important than money. It makes sense to sort these issues out before you're forced to do something in a hurried or desperate fashion.