Pension funds have for years used a 60% equity and 40% fixed income portfolio to match assets to future liabilities (paying out retirement benefits). Financial-Planning.com magazine recently reported on a study of investment returns from 1970-2009 comparing a 60-40 mix with a revised 55-35-10 mix. That is, 55% equity and 35% bonds and 10% in those infamous alternative investments. In this case, 10% in the Goldman Sachs Commodity Index (GSCI).
Geometric annual returns averaged 10.24% for the conventional 60-40 portfolio and 10.17% for the 55-35-10 mix. The risk, however, to get there was considered a little bit less at 10.48% when including commodities and a higher 11.04% for the plain vanilla stock/bond portfolio.
So, it appears that adding commodities to the mix may be slightly beneficial (during that historical period) because the commodities returns often move differently than the financial asset classes of stocks and bonds. In other words, one zigs while one zags. The problem, of-course, is consistently staying invested in the proportions assigned and being true to the allocation of 55-35-10 rather than being mad and selling the fund that did not do as well as the others. In addition, during this crisis from 2007-2009, everything went down together so you must be prepared to hold on during difficult periods like we just experienced. Did you?
I have talked to so many advisors that during the October 2007 - December 2008 first leg of of the downturn and then the final January-March of 2009 disaster, did not rebalance. They did not buy into falling stocks to rebalance the portfolio.
If you don't, then these studies don't work because they are based on "...the removal of all emotion..." from the asset mix. In reality, that is the key - removing emotion from your asset mix.
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.