Dumping the Old Asset Allocation Rules

What to do about asset allocation is the one question that I get every day which I absolutely cannot answer.

The reason is simple: no two investors are alike.

The answer varies whether you are young or old, have $1,000 in the bank or $1 billion, are a sophisticated investor or an average Joe, in the top or the bottom tax bracket, and so on.

This is something you should ask your financial advisor if you haven’t fired him already, which you probably should.

Only advisors who read the Diary of a Mad Hedge Fund Trader should merit your attention. At least they’re going the extra mile trying to figure things out.

Having said all that, there is one old hard and fast rule, which you should probably dump.

It used to be prudent to own your age in bonds. So, if you were 70, you should have had 70% of your assets in fixed income instruments and 30% in equities.

Given the extreme overvaluation of all bonds today, and that we are probably just entered a 7-10 year bull market for stocks, I would completely ignore this rule.

Instead, you should probably run a 50/50 portfolio, half in bonds and half in growth stocks. You can get 7% a year or more in yields these days in junk bonds and get a great inflation hedge to boot.

You will also own what everyone else in the world is trying to buy right now, high growth US stocks.

 

Allocation: Are You Him?

 

Or Him?