Some Sage Advice About Asset Allocation

Asset allocation is the one question I get every day which I absolutely cannot answer.

The reason is simple: no two investors are alike.

The answer depends on your age, net worth, tax bracket, risk tolerance and whether you're a sophisticated investor or an average Joe. ?

Asset allocation is something you should ask your financial advisor about.

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 over valuation of all bonds today, and that we are probably on the eve of a 30-year bear market, I would completely ignore this rule and own no bonds whatsoever.

This is especially true of government bonds, which are yielding negative interest rates in Europe and Japan, and only 1.55% in the US.

Instead you should substitute high dividend paying stocks for bonds. You can get 4% a year or more in yields these days, and a great inflation hedge to boot.

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

You will get this higher return at the expense of higher volatility. So, just turn off the TV on the down days so you won?t get panicked out at the bottom.

That is, until we hit the next recession. Then all bets are off. That, however, may be three years or more off.

I hope this helps.

John Thomas
The Mad Hedge Fund Trader