Domestic Equities 10.8%
Foreign Developed Equities 10.9%
Emerging Market Equities 4.8%
US Bonds 15%
Foreign Developed Bonds 19%
Emerging Market Bonds 8.9%
Floating Rate 3%
Alternatives 25.9%
Cash 2%
To be clear the above is not a recommendation from me it is what some guy who has been successful enough for Barron's to want to profile.
The article is very thin on details like there being no explanation as to what alternatives means. It could include things like commodities, REITs, absolute return and market neutral. It is not clear how the asset classes are built in the portfolios but there is a hint of fund use as they do use the Eaton Vance Emerging Markets Local Income Fund (EEIIX) for that exposure.
Clearly foreign exposure is preferred but there was no fundamental explanation, just a colorful quote about US centric investing being antiquated.
In the profile Montgomery used the word democratizing and clearly anyone wanting to emulate the above mix could easily do so with ETFs which is democratizing. If you are unfamiliar, there are floating rate ETFs including one from iShares with symbol FLOT. The 3% weighting to floating rate seems reasonable from the stand point that paper in this space tends to be lower quality.
.jpg)
Back to what alternatives might be, there are ETFs for most of those spaces too. You know about the various commodities funds which includes all encompassing funds that own everything to funds that own narrower segments like grains or industrial metals to many individual commodities. Index IQ has quite a few alternative strategy funds to replicate various market neutral-ish strategies. There are some ETFs in the long short arena but many more with the traditional mutual fund wrapper.
One final point of interest is is how little equity exposure there is. Equities provide an opportunity for growth yet a large segment of Montgomery's client base appears willing to forgo that opportunity. Anyone willing to forgo that opportunity should either already have a lot of money accumulated relative to their needs or have a very high savings rate.
11 comments:
Roger,
we've posted before: "conservatism is the enemy of all wealth".
The mentioned plan in your post looks like a certain path to mediocrity. IMHO, of course.
I'm not sure a mediocre is the correct adjective to apply to an asset allocation. If each segment blows away its respective benchmark then clearly it would not be mediocre.
As asset allocation is either suitable or it isn't.
I will pass on any advisor who puts 45.8% of a portfolio into bonds in the current low interest rate environment. Tell me what his expected return will be over the next 5 years.
9:05 am,
Would you say the same thing if your allocation to bonds had been 48.5% for many years? I have a large allocation to bonds and they have done quite well over the past few years. Even if interest rates rise and the value drops, the total return over many years is still decent.
No argument that bonds have been, emphasis on have been, an excellent investment over the last 30 years; as long term interest rates dropped from the low-to-mid teens to less than 2% on the 10-year. Do you see them dropping that much over the next 5-10, or 30, years? Of course not; for that to happen and for bond's return going forward to equal their past returns, the 10-year would have to go to -10% (Is that possible?). My interest is on what my portfolio will do from this point forward, not looking in the rear-view mirror; and I do actually own bonds in my portfolio for the characteristics they provide, but the total is less than half the allocation recommended.
Anon 2:15,
What then is your allocation to fixed income?
For me, my allocation is 50% fixed income, 50% equities. I am currently investing all new money, interest, and dividends into equities and will allow my allocation to drift until I reach my rebalancing threshold. I don't foresee selling bonds. This approach is modeled on Graham's advice for a defensive investor from his book The Intelligent Investor. It reflects that currently, the earnings yield of stocks is much higher that yields of high quality bonds. The only thing one knows for sure is that this relationship will eventually change.
Anon 3:35, I am not trying to pick a fight and everyone's situation is unique to them, and their portfolio should reflect their situation. To answer your question, my portfolio's bond allocation is currently about 20%, and a good chunk of that is high-yield. My situation: I have a pension and will soon start SS, and my wife will soon retire with a pension; I consider the pensions (both from reliable sources) and SS as covering our fixed income requirements. I look to the portfolio to provide growth and income, and be something we pass along to our heirs.
Just ask your investment advisor what is their personal asset allocation. For the vast majority it is less then 50% in stocks. The do not trust the "SYSTEM" as it operates now, so they may tell u one thing but for themselves are doing otherwise. Roger has posted himself about being less then 50% in stocks. Credit deflation is a tough environment and we have a long wa to go.
The do not trust the "SYSTEM" as it operates now
hey, you're adding 1+1 and getting eleven. not trusting anything is is an ignorant comment. If you are going to quote what I have said before then you need to provide the full context.
My low allocation is suitable for a high savings rate and allows me to ensure emotion over my personal accounts ever gets in the way of decision making for clients.
4:27,
Hard to argue with your reasoning. If your pensions and social security meet your basic living expenses, then you may be in a position to leave a large estate. I would agree in that if I were to lean in one direction or another in your situation, then it would be toward equities.
One last wrap-up comment. We got off on the tangents of my personal situation versus the situation and returns of the individual with a 50% bond allocation. Both are irrelevant. Going back to my original 9:05 AM comment. Is an allocation of 45.8% to bonds the most-likely allocation to produce the best returns over the next 5-10 years? No one knows right now because no one has a 100% accurate crystal ball. History, however, suggests that a portfolio allocation of something like 70%-ish stocks and 30%-ish bonds is the most-likely to produce superior returns; that's all I was trying to say. The 70/30 allocation is not right for everyone, but it is, in my opinion, a better starting point than that recommended. Enjoyed the discussion; good night, and good investing, to all.
Post a Comment