Letters

Emphasizing Asset Allocation

Comments on “How to Achieve the Right Asset Allocation,” by Sheldon Jacobs, in the June 2012 AAII Journal:

As a Boglehead (follower of John Bogle; Bogleheads.org) and a Vanguard investor, I would say I very much agree with Jacobs’ premise, and he presents good evidence. I have heard Sheldon Jacobs speak several times....very impressive.

posted by Gordon from North Carolina

No matter how sophisticated you are, it’s always good to step back and rethink the basics. Sometimes those get lost in the heat of battle. This was a good article.

posted by Robert from Massachusetts

If you have a just little to invest, or if you’re a novice investor, this is a good primer. That said, this is a model for the world of the 1970s through the 1990s, where normal business cycles, good balance sheets and earnings growth were the primary factors that determined investment success. One could diversify across and within these asset classes with occasional rebalancing and regular dollar cost averaging and sleep well. Then came the dark pools, derivatives and uber-leverage. In 2008, it all came crashing down.

The old allocation was an unqualified disaster with no place to hide but cash, and now even cash has a negative real return. Today, markets are tossed about by the actions of politicians and central bankers who are busy debasing their currencies to save their banks at the expense of savers and individual investors. A much more robust line of defense is required. Against all this, diversification calls for a position in gold, funds that offer uncorrelated hedging strategies or access to private equity, timber, a splash of REITs.

If you’re lucky you’ll lose money on the gold and hedging, and make money over the long term on the rest.

posted by Joseph from Minnesota

Reducing Risk With Asset Allocation

Comments on “Using Asset Allocation for Protection and Growth,” an interview with David Darst, in the June 2012 AAII Journal:

I think this article was well-written and useful for those of us who do not read financial textbooks. There were a lot of helpful reminders for me. I do not use a financial planner and these discussions are very useful for me.

posted by Thomas from Pennsylvania

Rationalization and Investing

Comments on “Dishonesty, Choices and Investing,” an interview with Dan Ariely, in the June AAII Journal:

I really like Dr. Ariely’s work and this article. Figure 1 says that the amount of money to be gained has no effect on dishonesty. Perhaps it is a matter of definition. What happened to the idea that every man has his price? Or this old story: Would you do it for a million dollars? Well, yes. Would you do it for $50? What do you think I am? We’ve established what you are—now we’re haggling over price!

posted by W from Minnesota

An Alternative Allocation

Comments on “The Alternative Portfolio: Diversifying Away From a Traditional Allocation,” by Charles Rotblut, CFA, in the June 2012 AAII Journal:

Those looking for an alternative portfolio should consider Harry Browne’s Permanent Portfolio. Browne developed what he thought was the optimal portfolio: 25% broad-based equity, 25% long-term Treasuries, 25% gold and 25% money markets. Browne believed that this was a “portfolio for all economies” (inflation, deflation, etc.). Before you scoff, consider that this portfolio has an 8%–9% average annual return over the past 30+ years with lower volatility than the S&P 500 index.

posted by Edward from New Jersey