What's your "Perfect Portfolio?"

[moda0306]

http://www.smartmoney.com/investing/sto ... 688341486/

Nothing really to say about this... just... Wow.

[l82start]

wow...  it would have me in 60% stock and 20% bonds with 10% cash and 10% "alternative" and it calls that conservative!
it is not even close to my definition of conservative, and "alternative = real estate or a commodity basket...  i think i will stick with the pp

[moda0306]

I was 90% Stocks, 4% bonds, 4% cash, 2% alternative assets.

I wonder what the rebalance bands are?  I love how, not only do they not mention gold, they use this measley sliver of "alternative assets" like it's actually something worth even writing.

What is this "alternative asset?"  Gold, TIPS, foreign currency, REITS?  How is only 2% of your portfolio supposed to protect you against any real threats to your wealth?

[moda0306]

How about the 57 year-old empty nesters:

60% stocks???

20% bonds is all, so where is the rest?

"Alternative assets" at 18%.  Hopefully they mean gold.

But 60% stocks for a near-retired couple, and 18% of the portfolio isn't even identified?  Fail.

[moda0306]

It specifies "alternative assets" as "real estate or a basket of commodities"... so let me get this straight:

A 57 year old couple should invest in:

60% stocks (Crashed immensely in 2008)
18% "real estate or commodities" (crashed immensely in 2008)
20% "Bonds" (didn't specify treasury or length of term, so even these aren't necessarily going to be safe).

60% VTI in 2008:  -36.67%
9% REITS in 2008:  -41.01%
9% commodities in 2008:  -31.73%
20% Total Bond Fund in 2008:  +5.13%
2% Cash (SHY): +6.19%

Total 2008 Return for a 57 year-old couple: -27.4%

[MediumTex]

That sort of thing just leaves me deeply puzzled.

My main question is whether the creators of this kind of article and set of portfolios know how off the mark they are and just don't care, OR do they really not know how off the mark they are and really think they are providing useful information.

[moda0306]

The thing is, MT, people (me two years ago) will eat stuff like this article up like candy, but you tell that same person about the PP and they look at you like you just slapped their mother.

[Lone Wolf]

This is hilarious!  These portfolios remind me of myself when I first started investing after college.

I love the 25-year-old's portfolio:
67% Domestic Stocks
27% Foreign Stocks
4% Bonds (they suggest emerging market bonds)
2% Cash

So that's 94% in equities, 4% in Venezuelan bonds, and 2% for beer money I guess.  ("Beer Money" is defined as the money you cannot afford to lose.)

Things get a lot less hilarious when you think about people near retirement losing a lot of money in the portfolio that moda analyzed.

At least I think we can safely say that these investment strategies were not stolen from Harry Browne.

[l82start]

after being exposed to the pp those sorts of investment strategy pitches start to sound like a carny barker hustling a townie....

[moda0306]

MT,

I think there is a segment of society that believes/feels that the only "risk" associated with stocks is simply a matter of length of time you have to hold before they will necessarily offer more growth than bonds... and even with the last two centuries containing long periods of time where stocks lag bonds, something in them tells them that it's much shorter a period of time than it could very likely be.

I know this because I used to have this impression and it was either initiated or reinforced by investment experts, articles and common wisdom everywhere.  "Just stomach the losses because you have 10-40 years to ride the wave and stocks WILL do better.  It's SCIENCE!"

[moda0306]

L82,

Good analogy.

[MediumTex]

MT,

I think there is a segment of society that believes/feels that the only "risk" associated with stocks is simply a matter of length of time you have to hold before they will necessarily offer more growth than bonds... and even with the last two centuries containing long periods of time where stocks lag bonds, something in them tells them that it's much shorter a period of time than it could very likely be.

I know this because I used to have this impression and it was either initiated or reinforced by investment experts, articles and common wisdom everywhere.  "Just stomach the losses because you have 10-40 years to ride the wave and stocks WILL do better.  It's SCIENCE!"

Sure, I travelled that road as well.

It's like someone who grows up in a cult and only knows the cult's belief system and traditions.  Untangling a mind that has had that experience can be challenging.

Most peddlers of investment products are like the people at Bob's Country Bunker in "The Blues Brothers."  When Jake and Elwood asked them what kind of music they played, they replied "both kinds--country and western."  The investment equivalent of this is something along the lines of "You want to diversify?  Great!  We can go 50% domestic equity and 50% foreign equity."

The sad thing is that people often stake their life savings on these poorly designed strategies.

[moda0306]

Yes, it's less funny when you actually see the real consequences of it, especially when salt-of-the-earth individuals that do honest work get duped simply because they trusted someone to handle their finances for them like others trust them to cut hair, build a home, fix a toilet, etc with professionalism and honesty.

And MT, 50/50 could never really make you truly diversified...

If you don't have at-least 6 stock funds capturing SCV domestic (prosperity), energy, EM, gold miners & foreign (inflation), high dividend (deflation), and blue chip consumer staples (recession), you'll never be truly diversified.

You have to capture all 4 macroeconomic movements to keep your losses to simply horrifying as opposed catastrophic in times of crisis.

[Pkg Man]

Very interesting.  I was quite surprised about the level of stocks recommended, not even the old "own your age in bonds" adage.   

I wonder how I would have reacted to this article about a year ago before I found the PP. 

[cowboyhat]

Two of my older friends at work lost 30% in 2008. This is near the end of their working lives. About 1/3 of their accumulated savings. Both postponed retirement plans and are continuing work to make up for their loses. The volatility in the stock heavy approach is a disaster if it comes late.

I'm pretty stupid, but seeing somebody scalded like that is enough to keep me away from pots of boiling water.

[Storm]

Very interesting.  I was quite surprised about the level of stocks recommended, not even the old "own your age in bonds" adage.   

I wonder how I would have reacted to this article about a year ago before I found the PP. 

I love it how their categories are like "75 but you can run a marathon", as if because you're still physically healthy at 75 you can be 60% in stocks because when you lose half your portfolio you can still spend 30 years rebuilding it... LOL

[moda0306]

Somebody should burn in hell for this ever having been posted on a website called "Smart Money."

[MediumTex]

Anyone want to comment on how many people have probably been damaged by "Money" magazine.

When I was a kid I used to see the Money magazine covers and marvel at how simple it made investing look.  Little did I know then that they made it look simple because it was mostly based on a fantasy.

[moda0306]

I think my Money Magazine subscription was a stepping stone to the PP in the same way that an alcoholic father can turn some people into driven, responsible, healthy individuals (not that I'm any of those three to the degree I'd like to be).

I actually give MM credit for turning me on to the safety, return, and non-correlation to stocks of long-term treasuries.  It was a piece they did that made me see how great owning stocks/LT treasuries over the past 25 years would have been for volatility and return.  They didn't pose it this way, but the article had the right facts and illustrations for me to put 2 and 2 together.  That whole idea was stuck in my head until I stumbled on crawlingroad and realized HB had pieced the whole thing together decades ago.

I think some value can be pulled out of a Money article, but you have to know how to flip through all the bs.

[AdamA]

Anyone want to comment on how many people have probably been damaged by "Money" magazine.

It's probably better than the stuff I was reading.
http://www.sharkinvesting.com/

[moda0306]

Adam,

Did you actually use that?  I'm not asking to make fun, but I really need to hear about how these things DON'T work, sometimes, to keep me from diving into some kind of get-rich-quick scheme.

[AdamA]

Adam,
Did you actually use that?  I'm not asking to make fun, but I really need to hear about how these things DON'T work, sometimes, to keep me from diving into some kind of get-rich-quick scheme.

I read his book, and tried to employ some of his methods (which are vaguely described at best).  The book, like many many investing books, is basically a sales pitch for his investing "services."

It appealed to me at the time b/c, when I was flipping through it, I read a page wherein the author bashes The Motley Fool, with which I had become recently disillusioned after reading "Crash Proof" by Peter Schiff (don't ask what one, The Motley Fool, has to do with the other, Crash Proof, b/c I don't remember what my flawed logic in this regard was).  

Anyway, I thought I could employ his shark investing methods to mining stock purchases.  

Thank God I never really got serious about this.  I never paid for anything other than the book (in this case).

I could go on, as there have been many misadventures (lemme know if you wanna hear 'em).  

Adam

P.S.

Feel free to make fun.