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Why A 'Balanced' Portfolio May Not Work

Friday, May 18, 2012 - 5:49 AM
From SmartMoney magazine:
What if everything your investment adviser is telling you is wrong?
[...]
Chances are, when you cut through the jargon and the spin, they're all based on one big assumption: that a balanced portfolio of stocks and bonds, rebalanced regularly, will see you through whatever comes next.
[...]
Here's the problem: This entire strategy is based on a dubious reading of history, a misrepresentation of the facts and a fair amount of sleight of hand. And it's terrifying to think that so many people are relying on it nonetheless.

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7
Ken TuminKen Tumin5,442 posts since
Nov 29, 2009
Rep Points: 123,743
1. Friday, May 18, 2012 - 8:21 AM
"If there is no perfect solution, that is in the nature of the markets. But investors need to be braced for the possibility that the fund industry's simplistic solutions, as well as its optimistic forecasts, come with absolutely no guarantees."

Oh, you mean no one really knows what the right advice is? Gosh, why are all these financial advisers, pundits, columnists and analysts getting paid sometimes huge amounts of money to tell people what their proper portfolio should consist of? Because they get away with it. That's why.
4
ShorebreakShorebreak2,378 posts since
Apr 6, 2010
Rep Points: 12,696
2. Saturday, May 19, 2012 - 8:31 PM
Folks, for your serious (read:retirement) money, age-in-bonds is a no-brainer. For my fixed-income allocation, I am somewhat of an outlier (by Boglehead standards), as I tend to tilt toward CDs rather than bond funds. Once you get to a certain point, after all, it's just about keeping score. When you have enough "in the bank" (so to speak) to retire safely (at a 4% safe withdrawal rate), it's not a great idea to take chances.
3
BozoBozo135 posts since
Feb 14, 2011
Rep Points: 917
3. Sunday, May 20, 2012 - 5:50 AM
Bozo, according to your age-in-bonds rule, I should have 40% of my money in stocks. Maybe I fit in your last category (not needing to take excessive risks), so I would never trust having that much of my assets in equities, after witnessing the carnage in 2008-9. Considering the reckless monetary policy being pursued by the Fed and the irresponsible fiscal policy of our govt, I think the stock market is an accident waiting to happen. I don't know when, but I am sure most investors will panic at the wrong time.

BTW, I was telling everyone I knew that the real estate market was going to implode about 3 years before it happened. Having been employed in the real estate finance field, it wasn't hard to figure out. Median income and housing prices were way out of whack. I can't tell you how many real estate brokers said I was nuts. At one point I began to doubt myself as well, since I was so early.
2
loulou521 posts since
Aug 3, 2010
Rep Points: 3,239
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