Today I met up with an old friend of mine and one of the better financial advisors I know out there.
He basically does full service wealth management for clients at one of the bigger investment brokerages and we were talking about people's stock exposure and how the majority of people are over-exposed to stocks.
50/50 Allocation
He told me that they automatically rebalance their clients portfolios to 50/50 continuously. Meaning, 50% of an account in invested in different stocks and the other 50% is in fixed assets, such as bonds.
Most people have a 60/40 or even 70/30 allocation of stocks to bonds. It's super risky and, yes may be great when the stock market is going up, but when we inevitably pull back....look out below.
So the irony is he and his partners have literally had to defend the 50/50 allocation in the past few years as technically they are under-performing the broad market by just a little.
However, over the long term this allocation will outperform the others time after time. In fact, the ideal allocation from all the research I have read is 35/65...yep even less in stocks then they are doing.
Over the course of 30 years (basically the investing life of a working career) it has shown to outperform based on historical data and studies.
Anyway, just some food for thought on portfolio allocation.
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I remember learning that 30% safety actually increases a return and the risk at the same time. 50/50 is not a formula I've heard before. Maybe they customized the percentages since we are in an asset bubble.
Yeah, as I mentioned 50/50 is technically aggressive. It's prob all they could sell clients on without losing them. I think alot of people are gonna get hurt sometime in the next few years. Market been up 8 straight years...how often does that happen in history ;-)
Ive never really been a fan of bonds or annuities. There are enough blue chip companies paying consistent dividends that also appreciate with time.
I can agree with that, but in the end I'm always gonna have a some piece of my portfolio in things that generally don't lose 20%+ percent in a given year. There are always stock market crashes, just been a while since the last one.
That is a good default to fall back on but other factors could imply changes. For example, if somebody cannot sleep at night thinking of the volatility of the stock market, he may need a lower allocation. I believe in adjusting the allocation as the life cycle matures. As long as diversification is present, it should work out in the long run.
I agree, or for less maintenance one can employ the "all weather" portfolio which is where the 65/35 comes more into play, but it also has an allocation for some metals too.
Nice
I just give you upvote for you kindly do same thing for me
I invest to maximime my employer match. Its not much but ots building for the future.
Def. max out that employer match, but be aware of the funds you are in in our 401(k) or the like. They usually give you a handful of options and very often the "diversified" funds are grossly overweight stocks.
That data is pretty wild, I would have never thought that would be the case. I guess as they say, mo money, mo problems, meaning more reward, more risks.
Yeah, read Ray Dalio's stuff. I think you will enjoy it.