MarketWatch: Why 60/40 AA may no longer work

[SumDay]

From today's MarketWatch:

Why the 60/40 asset allocation model may no longer work

Quote:

The 60-40 strategy is rooted in modern portfolio theory, first popularized in the late 1950s, which holds that diversification among asset classes helps boost returns. The problem, in a nutshell, is that low bond yields—driven by the Federal Reserve’s policy of keeping borrowing affordable—combined with historically low stock dividends have thrown the model out of whack. Advisers who are turning away from the 60-40 strategy say they don’t see the situation improving significantly in the longer term. They point out that rising interest rates will have the effect of depressing bond prices.

[ziggy29]

Takeaway: They suggest more allocation to "strategic" assets not typically in a stock/bond allocation. Presumably they include the usual bets against the dollar (foreign currency, gold, commodities) and such. Some reference to the Permanent Portfolio is also in there (disclosure: I own a position in PRPFX).

Still, it's more of the same old stuff that is probably trying to get DIY investors scurrying to see financial planners.

[samclem]

Not much meat in the article. They propose that 40% bonds may be too much right now because rates are low, something we've been batting around amongst ourselves for awhile now. But the article doesn't say the low rates will stick around forever. If the situation is temporary, it makes more sense to me to just reduce the problem (shorter term bonds) or avoid it by going to cash equivalents. When bond rates rise, buy back into them at the lower bond prices and continue as we did before the Fed got involved with rate suppression.

[heeyy_joe]

Quote:

Originally Posted by samclem Not much meat in the article. They propose that 40% bonds may be too much right now because rates are low, something we've been batting around amongst ourselves for awhile now. But the article doesn't say the low rates will stick around forever. If the situation is temporary, it makes more sense to me to just reduce the problem (shorter term bonds) or avoid it by going to cash equivalents. When bond rates rise, buy back into them at the lower bond prices and continue as we did before the Fed got involved with rate suppression.

+1

[audreyh1]

Seriously, ignore MarketWatch. It's worth about what you pay for it.

[REWahoo]

Quote:

Originally Posted by audreyh1 Seriously, ignore MarketWatch. It's worth about what you pay for it.

What? Don't follow every word Paul Farrell says?

[audreyh1]

Quote:

Originally Posted by REWahoo What? Don't follow every word Paul Farrell says?

Definitely not him! But I don't think I've ready any other worthy authors on that site either.

[Ready]

I don't see how anyone can predict stock market returns all the way out to 2020 and expect to be taken seriously. These analysts tend to be wrong just as often as they are right, which means they have a 50/50 chance of predicting the actual outcome of the markets. I'm just as capable of taking a 50/50 guess without knowing much of anything about the markets, so that's not saying much.