Every so often I like to put up a post to reinforce the extent to which proper diversification can make managing your portfolio a little easier. Over the last month or so gold, as measured by client holding GLD, is up about 7% compared to about 2% for the S&P 500. I have written about gold a zillion times and I tend to say the same thing; I am no gold bug but I do believe owning some makes for good diversification.
By being properly diversified there is less need to be specifically correct about what will do well in the short run.
By the same token I still stick with health care despite its general lag of the market. In the same time period that GLD is up 7% another client holding, Johnson & Johnson, is down 4%. At some time health care will provide leadership to the market and chances are most stocks will participate. By sticking with the sector I don't have devote time to picking when is the "right" time to get in.
The concept is more for people who do not want to trade a lot, people who just want to have enough money when they retire without going on a roller coaster.
Proud Member Of
Random Roger
© 2009 | Gadget Theme Blogger Template
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
13 comments:
Maybe sophisticated investors, before dismissing your timely reminder to diversify,should headslap themselves and take a long, hard look at their holdings.
Diversification in a Permanent Portfolio, adjusting periodically to balance the contents, requires both discipline and humility. Especially humility.
Following an educated hunch is best left for the Speculative Portfolio, perhaps 25% of your net security worth. This allows the ego some room to play.
25%? maybe or maybe any number that could absorb a big hit w/o causing undue distress or loss of sleep
I have taken the approach of allocating zero to spec money.
I have gotten looks from friends etc when I bring this up, but I just can't see how having any spec money can do you any good.
The Policy / Permanent portfolio, what ever you want to call it, IMHO should be 100% allocated to your goals.
1) A spec purchase can effect the diversification / asset allocation of your non-spec portfolio.
2) You shouldn't be able to consistently beat your returns of non-spec with spec, so why bother?
3) It's time consuming.
4) It puts you in an "I can guess the future" mode.
5) If you do start to outperform, you'll be tempted to increase your spec portion.
6) It's hard enough - as t and Roger note - to stick with it, without tempting yourself.
Anyone else like me? Spec-less?
Roger, I agree that a small gold position is a good buffer due to the low correlation between the market & price of gold.
I have found that I allocate more to depleting assets - timber, minerals; these offer some dividends on top of low market correlation.
On October 5th, 2006, NPR did a story on David Swensen, the manager of Yale University's Endowment. This is my first post here (or on any blog for that matter), so I don't know if I am allowed to include the link to that show. If so, here it is: http://www.npr.org/templates/story/story.php?storyId=6203264 .
Briefly, he believes that a portfolio should maintain steady ratios of 15% Inflation Protected US Securities, 30% Domestic Equity, 15% Foreign Developed, 5% Emerging Market Equity, 20% Real Estate (Reits), 15% US Bonds. It gets more nuanced, but I don't want to bore others with the minutia. He believes in rebalancing regularly and paying meticulous attention to management fees. His average annualized return over 21 years has been 16%. Last year (2006) it was 23%. I read his most recent book, "Unconventional Success, A Fundemental Approach to Personal Investment". It is notably dry reading, even when he fires a series of broadside salvos at the Mutual Fund and ETF Industries, specifically their fees and marketing. But, I find that his observations regularly surface as I look at the market and my portfolio. I have set up a model portfolio based on his recomendations and I am very impressed with the very steady nature of its performance. I'll watch it for a year.
Interestingly, the return for the last 5 months is about equal to the Vanguard Total Stock Market, but with much less risk (except currency devaluation) because of the relatively large bond exposure.
diff thanks for the comment, links are welcome but they get truncated sometimes.
anyone interested in the NPR link can click here
diff, care to share the portfolio you are following? I have been reading about yale strategies (and Harvard's) but much of their allocations are not available to us paupers (private equity, timber, etc). Thank you.
NPR site said Vanguard is a nonprofit "company" is this true????? anyone know?
that is true Vanguard
I wholeheartedly agree with Roger's GLD comments regarding allocations.
didier I don't think that statement has to be true. I can be true but certainly does not have to be true at all.
Now at the same time, it is difficult through a diversified portfolio to beat the S&P. One got to be overweight in better performing sectors to achieve outperformance, hence increasing risk and lesser diversification.
blog
Post a Comment