Asset Allocation

“One of an advisor’s greatest challenges? Directing client expectations – and meeting them with portfolio performance.”

When Gordon Murphy, an investment banking veteran, was told he only had six months to live, he decided to use his last days to write a book aimed at changing the way most individual investors think about investing.

“Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.”

Most investors do not have a balanced portfolio. And by chasing investment returns they miss the easy money they could make from having a good asset allocation in the first place and rebalancing it periodically.

In the midst of this turmoil, especially after this past summer’s sharp drop, many investors wonder if they should put all of their investments into something safe and avoid the markets altogether.

Just because something costs a lot doesn’t mean it is an investment. An investment is something that pays you money.

Q: I just hit the big 5-0, and my retirement date is now in the foreseeable future. How do you suggest I assess the performance of my 401(k) and investment accounts? Do you have any benchmark recommendations? I would like … Read More

I’m in my 20s and I’m just getting started in the working world. I’m also looking at a Roth IRA. Is there a certain Roth you recommend?

I’m in my 20s and I’m just getting started in the working world. Which of the attached 401(k) investment choices do you recommend?

Investors pulled $83.31 billion out of stock funds during the summer months. Stocks drop when there are more sellers than buyers. And when there are outflows like this stocks drop precipitously.

This summer many things that should do better over a long-term investment strategy did not. This situation is not unusual for one quarter’s worth of time. Such a result only makes reversion to the mean much more likely in the coming quarters.

David John Marotta was featured on radio 1070 WINA’s Rob Schilling show on September 13, 2011. The topic was the CNBC million-dollar portfolio challenge, and how it does not emulate a good real-life investing strategy.

CNBC’s million-dollar portfolio challenge begins next week. Participants can trade a fictional account of stocks and currency. Prizes are given over each of the 10 weeks, and then a grand prize winner is awarded a million.

Libertarians and economists both recognize that countries with more economic freedom experience higher gross domestic product (GDP) growth. That growth translates into higher stock returns for investors savvy enough to look for governmental fiscal restraint rather than government stimulus.

When choosing between two bond funds with similar returns to team with a stock fund, choose the bond fund with lower correlation with the stock fund you’re selecting

Not every investment consultant has your interests as the top priority, or even the necessary credentials. Here’s how to find the right type of adviser.

I recently read two articles that provided insight on how investors should respond to a market downturn.

A study by Morningstar cited in the Journal of Indexes shows that investors under-perform the very funds they are invested in by 1.5%. Learn how that is possible and avoid that mistake.

“One of the jobs of a financial adviser is to keep people from doing things that feel like the emotionally right thing to do but statistically are the wrong thing to do.”

On the same day that the S&P 500 plunged 6.7% in reaction to the Standard & Poor’s downgrade of US sovereign debt, Bloomberg is reporting on two different headlines stating that Warren Buffet’s company, Berkshire Hathaway, is on a buying spree.

I was asked to speak at the Leadership Development Center at the University of Virginia’s EAN Annual Conference on Thursday, August 4th 2001. I’ve collected links to all the resources I mentioned in that talk here in one place.

In a recent Vanguard commentary entitled, “Despite gloomy news, some trends back economic improvement”, Mr. Aliaga-Diaz writes that there are many factors pointing to a long term economic recovery.

Adding bonds to an all-stock portfolio can boost returns and lower volatility, especially in choppy markets. Bonds should be a small but important part of your gone-fishing portfolio allocation.

Hard assets have been one of the most significant asset classes over the last decade. From all indications, it will continue to be a critically important investment category to protect your portfolio from the effects of inflation and the continuing devaluation of the U.S. dollar.

Even in our gone-fishing portfolios we suggest investing more overseas than in the United States. For most investors, foreign stocks will be their largest and most important allocation. Including the right mix of foreign stocks will help you relax and go fishing no matter which foreign seas are in turmoil.

Creating a gone-fishing portfolio begins with a top-level asset allocation. We use six asset categories. The three for stability are short money (maturing in less than two years), U.S. bonds and foreign bonds. The three asset categories we use for appreciation are U.S. stocks, foreign stocks and hard asset stocks.

Americans seem to be divided on the importance of raising the U.S. debt ceiling. Regardless of your personal politics, avoid investing in countries that cavalierly allow their debt and deficit to balloon.

Summer is almost here. It’s time to go fishing or take a trip or do wherever else you enjoy while on vacation. Unless your interests lie in investment management or you have a trusted fiduciary watching over your investments, consider having a portfolio designed to allow you more time to relax.

Setting a target asset allocation is the most critical part of investment management.

Many U.S. investors crowd their assets into a combination of large-cap U.S. stocks and U.S. bonds. This allocation represents only one and a half of the six asset classes described here.

Your investments should be working for you, appreciating more than inflation to become an engine of growth that pays you money and provides some measure of financial freedom.

All assets are not equal. Some investments appreciate better on average than others.

Timing the markets this past year was nearly impossible.

Because the markets changed course at least once over the past year, rebalancing tended to improve returns.

Diversifying your asset allocation among investments with a low correlation can and should reduce your portfolio’s volatility and boost your returns. But critics are claiming this strategy is no longer valid. That’s because they don’t understand the nature of what happened in 2008.

In this formula is deep wisdom, both for portfolio construction and for determining which categories are worth regular rebalancing.

Generally, a correlation that can drop below 0.6 with other asset classes is a good candidate to become its own asset class.

But if you were invested in a balanced portfolio, you did not lose this past decade.

Even if you only use index funds, you should blend dozens of them in an asset allocation aimed at reducing risk and increasing returns.

Portfolio construction begins with the most basic allocation between investments that offer a greater chance of appreciation (stocks) and those that provide portfolio stability (bonds).

Without a financial plan, your investments are controlling your dreams, not the other way around. You need a blueprint for your financial dreams to come true. That blueprint in sound financial planning is called an Investment Policy Statement (IPS).

Investors are quick to forget that the markets also go down.

“Bet on red.” replied my mother, “Now, let’s talk about how much risk you want to take.”

While everyone agrees that you should be diversified, it is important to know what your manager means by the term “diversified.”