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Asset Allocation
Before Doug Weimer's version of Growth and Momentum Investing was brought to my attention
during the "Roaring Nineties", I was convinced that the market could not be beaten. Now I
believe that it is possible to beat the market, but it is EXTREMELY difficult. I have
included this section on asset allocation because it may be of interest and/or because it may
be used as a metric, by which the Growth and Momentum's portfolio performance can be gauged.
You may wish to use the Growth and Momentum Portfolio as a component of this Asset
Allocation Model.
During the "Roaring Nineties" asset allocation as an investment strategy in the "pop"
financial media went from being the "new, new thing" to something only feeble
minded academicians did in their ivory towers if they weren't wired. After
the tech debacle that began in 2000, diversified portfolios are once again
in vogue.
I back-tested numerous asset allocation models since 1969
and I am convinced that it is EXTREMELY difficult to beat the risk adjusted
return of a well designed asset allocation model. Four simple Asset Allocation
Models that I designed have been tracked on websites that I have managed
since 6/30/2001 and they are shown below.
What is Asset Allocation?
Simply stated, it is a value oriented system of diversified investing that
encourages and counsels you to "Buy Low and Sell High". Easy to say - impossible for many to do.
What are Asset Classes?
Groups of assets, that on average, will move together. For example, when an
economy is healthy and growing then the stock market represented by that
economic system will generally perform well and vice versa. You can create asset
classes yourself e.g., real estate in your home town or you can invest in
broadly diversified markets e.g., global stock or bond markets.
What is meant by "a well designed Asset Allocation Model"?
A well designed Asset Allocation Model
contains asset classes for which there is a reasonable expectation of
satisfactory performance AND it contains asset classes that are not always expected
to move in tandem i.e., when one zigs, the other should zag.
In which Asset Classes should I invest?
You should invest in asset classes within your personal "comfort zone". That
means that if you are not comfortable with stocks then you should NOT
invest in stocks. It means that if you are xenophobic (and most folks are) then
you should NOT invest in foreign stocks. Why not? Because when
they crash (and they will) you're gonna say, "I knew that was gonna happen."
And then you're gonna sell them. And THAT, is exactly the wrong thing to do.
So, in order to save yourself some time and money, determine your comfort
zone and/or cure your phobias before you do anything else. For more go to
Stock-Bond Ratio
The Four Model Portfolios:
1. The US Portfolio
50% Vanguard Intermediate Term Bond Index Fund (Ticker VBIIX)
50% Vanguard Total US Stock Market Index Fund (Ticker VTSMX)
This portfolio will be re-balanced on the final trading day of every
quarter
A Table and a Chart comparing the performance of the four portfolios to the S&P 500
is shown at the bottom of this page
2. The TIMED US Portfolio
REBALANCE AS SHOWN BELOW on September 30, 2008
32% Vanguard Intermediate Term Bond Index Fund (Ticker VBIIX)
68% Vanguard Total US Stock Market Index Fund (Ticker VTSMX)
This portfolio will be re-balanced on the final trading day of the quarter,
however, its Bond-Stock allocation will change as market conditions change.
Go to the Fed Stock Valuation Model
for an explanation of the methodology used to determine its Bond-Stock allocation.
The new composition of this portfolio will be specified after the market closes
on the penultimate trading day of every quarter.
A Table and a Chart comparing the performance of the four portfolios to the S&P 500
is shown at the bottom of this page
3. The Global Portfolio
50% Vanguard Intermediate Term Bond Index Fund (Ticker VBIIX)
10% Vanguard 500 Index Fund (Ticker VFINX)
10% Vanguard Extended Market Index Fund (Ticker VEXMX)
10% Vanguard European Index Fund (Ticker VEURX)
10% Vanguard Pacific Index Fund (Ticker VPACX)
10% Vanguard Emerging Market Index Fund (Ticker VEIEX)
This portfolio will be re-balanced on the final trading day of every quarter.
A Table and a Chart comparing the performance of the four portfolios to the S&P 500
is shown at the bottom of this page
4. The TIMED Global Portfolio
REBALANCE AS SHOWN BELOW on
September 30, 2008
32.0% Vanguard Intermediate Term Bond Index Fund (Ticker VBIIX)
13.6% Vanguard 500 Index Fund (Ticker VFINX)
13.6% Vanguard Extended Market Index Fund (Ticker VEXMX)
13.6% Vanguard European Index Fund (Ticker VEURX)
13.6% Vanguard Pacific Index Fund (Ticker VPACX)
13.6% Vanguard Emerging Market Index Fund (Ticker VEIEX)
This portfolio will be re-balanced on the final trading day of the quarter,
however, its Bond-Stock allocation will change as market conditions change.
Go to the Fed Stock Valuation Model
for an explanation of the methodology used to determine its Bond-Stock allocation.
The new composition of this portfolio will be specified after the market closes
on the penultimate trading day of every quarter.
A Table of Values is shown below the Chart
|
ASSET ALLOCATION versus the S&P 500 |
|
Returns thru September 30, 2008 |
|
|
|
|
|
|
|
Annual Return |
4.92% |
6.11% |
7.82% |
9.75% |
1.25% |
|
Twelve Month Returns |
|
Total Return |
33.43% |
42.75% |
57.14% |
74.74% |
7.72% |
|
|
|
|
|
|
|
|
|
50% |
Timed |
50% |
Timed |
|
|
50% |
Timed |
50% |
Timed |
|
|
|
|
US |
US |
US |
US |
|
|
US |
US |
US |
US |
|
|
QTR |
HISTORICAL |
Bonds |
Bonds |
Bonds |
Bonds |
S&P |
|
Bonds |
Bonds |
Bonds |
Bonds |
S&P |
|
NO. |
RETURNS |
50% |
and |
50% |
and |
500 |
|
50% |
and |
50% |
and |
500 |
|
|
|
US |
US |
Global |
Global |
|
|
US |
US |
Global |
Global |
|
|
|
|
Stocks |
Stocks |
Stocks |
Stocks |
|
|
Stocks |
Stocks |
Stocks |
Stocks |
|
|
Q29 |
Quarter ending 9-30-08 |
-5.6% |
-6.7% |
-9.5% |
-11.9% |
-8.4% |
|
-5.7% |
-8.7% |
-6.7% |
-10.3% |
-15.5% |
|
Q28 |
Quarter ending 6-30-08 |
-1.9% |
-1.7% |
-1.5% |
-1.2% |
-2.8% |
|
1.4% |
-0.8% |
5.5% |
4.4% |
-7.2% |
|
Q27 |
Quarter ending 3-31-08 |
-3.2% |
-5.3% |
-3.0% |
-5.1% |
-9.5% |
|
3.3% |
0.9% |
7.1% |
5.7% |
-4.6% |
|
Q26 |
Quarter ending 12-31-07 |
0.1% |
-0.8% |
0.8% |
0.0% |
-3.4% |
|
6.7% |
6.6% |
10.4% |
11.5% |
5.4% |
|
Q25 |
Quarter ending 9-30-07 |
2.4% |
2.2% |
3.8% |
3.9% |
2.0% |
|
10.9% |
12.9% |
15.9% |
19.5% |
16.3% |
|
Q24 |
Quarter ending 6-30-07 |
2.5% |
3.7% |
3.2% |
4.7% |
6.3% |
|
13.2% |
15.5% |
16.0% |
19.2% |
20.4% |
|
Q23 |
Quarter ending 3-31-07 |
1.4% |
1.4% |
2.3% |
2.6% |
0.6% |
|
9.0% |
9.7% |
10.9% |
12.2% |
11.7% |
|
Q22 |
Quarter ending 12-31-06 |
4.1% |
5.0% |
5.8% |
7.1% |
6.7% |
|
9.7% |
11.6% |
12.3% |
15.2% |
15.6% |
|
Q21 |
Quarter ending 9-30-06 |
4.6% |
4.5% |
3.8% |
3.7% |
5.6% |
|
6.6% |
8.0% |
8.6% |
10.8% |
10.6% |
|
Q20 |
Quarter ending 6-30-06 |
-1.3% |
-1.5% |
-1.3% |
-1.5% |
-1.5% |
|
3.4% |
5.8% |
9.3% |
14.3% |
8.5% |
|
Q19 |
Quarter ending 3-31-06 |
2.0% |
3.2% |
3.6% |
5.3% |
4.2% |
|
8.0% |
10.5% |
13.9% |
18.9% |
11.6% |
|
Q18 |
Quarter ending 12-31-05 |
1.3% |
1.6% |
2.3% |
3.1% |
2.1% |
|
3.9% |
4.9% |
8.7% |
11.5% |
4.8% |
|
Q17 |
Quarter ending 9-30-05 |
1.4% |
2.4% |
4.5% |
6.9% |
3.6% |
|
8.4% |
10.7% |
14.4% |
19.0% |
12.1% |
|
Q16 |
Quarter ending 6-30-05 |
3.1% |
2.8% |
2.8% |
2.4% |
1.3% |
|
8.4% |
8.7% |
11.9% |
13.3% |
6.2% |
|
Q15 |
Quarter ending 3-31-05 |
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