Forbes Article: 60/40 Portfolio is dead (Comments)

[cyber888]

Forbes Welcome

Just read a Forbes article stating investors should be more active because the 60/40 allocation is dead, and future growth of that allocation is below 3% per year. Appreciate your comments on this article. I do believe in dividends and writing options on the side.

 

[W2R]

I read several well regarded books on asset allocation, not to mention articles on that topic, when I was creating my own personal investment plans for the accumulation phase and for retirement. That was back in the early 2000's. My conclusion from all my inquiries and reading at that time told me a lot about the AA I needed in retirement for a conservative plan. I learned that for *me*, a retirement AA of 60/40 was dead and buried and the grass had grown over the gravesite, long, long before my 2009 retirement.

My post-retirement planned AA was initially 50/50, but shifted to 45/55 as retirement drew near.

Also, for *me* (being fairly conservative in my planning), honestly I never felt that an SWR over 3% would be acceptable. I read somewhere back around 2000 or 2002, that with roughly this AA and a WR of 3% one's money would last forever and I liked the sound of that. I don't think that's the case any more, though. Maybe 2.5%?

Anyway, I'm older now (68), and the chance that I would need a retirement lasting longer than 30 more years is pretty slim. Right now, I'm thinking that anywhere between 2%-3.5% would be perfectly OK for me from here on out.

I like to keep my withdrawals less than my dividends just for fun - - this is sort of a game that I play with myself. I have managed to do it every year so far except last year when I bought my house. This year, who knows. Dividends keep going down.

 

[DrRoy]

I also read the article, and he may be on to something, but you can't be sure. For safety, I agree that the old 4% WR is also a thing of the past, and we may have to go with 3% or less in the future. I am prepared for that.

 

[euro]

Well, it seems that maybe he is proposing only 50% equities and not 60%, so no big difference there. He likes/prefers value and dividend paying equities (I do too - a lot of people do!).
He proposes "appropriate" alternative allocations instead of bonds. I don't disagree with some of those (real state, private equity, etc), but what he seems to ignore is RISK. There are very few things you can replace a treasury bond with unless you are prepared to take on vastly increased risk. Maybe that is his main point: those of us who need significant growth may need to be willing to take on more risk?

 

[REWahoo]

... but what he seems to ignore is RISK.

That's what stood out to me as well. I'm surprised he didn't suggest buying Himalayan yak cheese futures.

 

[Options]

Predictions = noise (typical Forbes/MSM business section click bait). Thankfully, I landed on the last page of the "article" so I didn't waste any time out of my life reading the first two pages.

This"advice" is downright dangerous to most investors:

Consider taking a more active approach to investing.

To the extent you invest in traditional stocks and bonds, don’t be a buy and hold index investor. Yes, low fees are great. But the fact that you paid Vanguard only 0.09% per year in management fees won’t really matter if you’re returns are still close to zero.

Instead, try a more active strategy, perhaps focusing on value or momentum. Or perhaps try a dividend focused strategy. With a dividend strategy, you can realize a cash return even if the market goes nowhere for years at a time.

Consider investing outside of the market.

If you’re willing to get your hands dirty, consider starting your own business or investing in a cash flowing rental property. Yes, there is more work involved, and there is the risk of failure. But there is also risk in trusting your savings to a fickle market when both stocks and bonds are both expensive by historical standards.

Active investors crash and burn, and only particular individuals have the temperament/personality to "start a business" or "invest in real estate". This "advice" is thrown out so casually like it's as easy to do any of these things as buying a pair of shoes. The best investors are the most conservative, thorough, and stick only to what they know (see Buffet/Charlie Munger's "too hard" pile concept). Perhaps returns will be lower going forward, but this in no way means taking on undue risk.

I'm too lazy to dig up the endless studies/research showing the above Forbes "suggestions" are just plain wrong for most investors (aside from being based on faulty forecasting and subject to behavioral bias). Google it.

 

[redduck]

That's what stood out to me as well. I'm surprised he didn't suggest buying Himalayan yak cheese futures.

Apparently, the author of the article decided to omit the obvious.

 

[gayl]

Intern at Yahoo Finance suggests value over growth investing .... http://finance.yahoo.com/news/baml-...-140602834.html;_ylt=AwrTccGQdWFX6t0A4VNEDN04

 

[kevink]

IMHO the earlier article on his own website the author of this piece provides is much more interesting than the Forbes piece:

The 60/40 Portfolio Is Dead. Here Is Its Replacement - Sizemore Insights

I especially appreciate the comparison of his approach with Harvard's endowment. On the other hand, claiming all of these assets are non-correlated immediately brings to mind what happened during the '08 crash, when my supposedly ultra-sophisticated, thoroughly backtested portfolio of "non-correlated" assets (essentially Bob Clyatt's RIP portfolio) all tanked in unison to the tune or ~-23%.

That said, I think he's right about stock valuations being high and bonds going nowhere, but rather than manage something anywhere near as complex and costly as what he proposes I'd rather put it all in Wellesley and live on 2-3% of whatever it returns.

 

[Mulligan]

Predictions = noise (typical Forbes/MSM business section click bait). Thankfully, I landed on the last page of the "article" so I didn't waste any time out of my life reading the first two pages.

This"advice" is downright dangerous to most investors:



Active investors crash and burn, and only particular individuals have the temperament/personality to "start a business" or "invest in real estate". This "advice" is thrown out so casually like it's as easy to do any of these things as buying a pair of shoes. The best investors are the most conservative, thorough, and stick only to what they know (see Buffet/Charlie Munger's "too hard" pile concept). Perhaps returns will be lower going forward, but this in no way means taking on undue risk.

I'm too lazy to dig up the endless studies/research showing the above Forbes "suggestions" are just plain wrong for most investors (aside from being based on faulty forecasting and subject to behavioral bias). Google it.

An "investing decision" most likely to endanger my retirement would be "starting a business". With my ability, I could just see my precious stash of saved bills suddenly developing wings and flying away for good.....


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[target2019]

His suggestions are un-tested. Yale and Harvard use alternatives, yes. But I do not have $25B investable as does Yale. I can't directly emulate what they do.

I reckon Mr. Sizemore will help me find these unique opportunities, and help me find a home for my money. Nice of him to volunteer.

 

[pb4uski]

Now... lemme see... should I listen to this quack Sizemore or Warren Buffett

My advice to the trustee couldn't be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.

If 90/10 is good enough for Warren, then 60/40 is good enough for me.

Besides.... the the S&P 500 index is trouncing some hedge fund managers in a relatively famous Warren Buffett bet and the hedge funds are just the sort of thing that this clown Sizemore advocates investing in. See Buffett's Bet with the Hedge Funds: Year Eight (BRK-A, BRK-B) | Investopedia

Also, Sizemore's premise of low returns is all wet... Vanguard's projected in December 2015 that the projected 10 year return for a 60//40 portfolio would be 6.2% nominal (4.3% real) and that is consistent with other credible projections I have seen and are much higher than Sizemore's 3.6% nominal return for a 60/40 portfolio.

Sizemore expresses an opinion with no support at all... gotta love the first amendment.... any moron can have an opinion.

 

[unclemick]

Forbes Welcome

Just read a Forbes article stating investors should be more active because the 60/40 allocation is dead, and future growth of that allocation is below 3% per year. Appreciate your comments on this article. I do believe in dividends and writing options on the side.

1966 - 2016. Let me pinch myself. Yep both I and the portfolio are still alive.

What part of Mr Bogle's 'Stay The Course'. Or 'Hurry Up Just Stand There' does Forbes not understand?



heh heh heh - the 1966 - 1982 flat was a tad chewy. So where some of the dips.

 

[Senator]

Considering I do not have any bonds, I liked and agree with the article. Rental income has been my salvation and ticket to FIRE.

I am doing more indexed ETF dividend plays. I am bulking up my IVV and more recently am focusing on DVY, having purchased ~$90K in indexed equities this year alone. TTM Dividend yield is 2.25% for IVV and 3.16% for DVY. Paltry, but pretty good in relative terms.

This final point is really my specialty. To the extent I can, I am eliminating traditional bonds from the portfolios of most of my clients and replacing them with non-correlated (or at least minimally-correlated) alternative investments. A standard 60/40 stock / bond portfolio might instead become a 50/50 dividend stocks / alternative investments portfolio.

 

[medved]

I am very skeptical of anyone who thinks they know what "the right" asset allocation is. It depends on (among other things) what you have, what you are trying to achieve, and what allows you to sleep well at night. The notion that there is a one-size-fits-all asset allocation seems silly to me.

 

[Midpack]

Let's see:

• He recommends 50% of your portfolio in alternative investments, and his firm just happens to specialize in them. Sizemore Capital "Specializing in income portfolios and alternative investments for high net worth individuals and families" http://sizemorecapital.com
• And when asked whether his AA will outperform a traditional AA, he 'doesn't know, no one does.'

Sounds like more, you can't do this without our help (chasing returns), it's too complicated - another self-serving [-]article[/-] sales pitch. Pass...

Consider a truly alternative asset allocation.

This final point is really my specialty. To the extent I can, I am eliminating traditional bonds from the portfolios of most of my clients and replacing them with non-correlated (or at least minimally-correlated) alternative investments. A standard 60/40 stock / bond portfolio might instead become a 50/50 dividend stocks / alternative investments portfolio.

“Alternative investments” is a generic term that can mean just about anything. In practice, for me it has meant a combination of long/short strategies, options writing strategies, absolute return hedge funds, and liquid alternative portfolios. I’ve even incorporated a liquid alternative robo advisor into the mix.

Will a non-traditional portfolio like this outperform over time?

Frankly, I don’t know. No one does. We’ve never seen a market like today’s.

But to me, it’s the only move that makes sense. Taking the traditional path is a virtual guarantee of disappointment. Incorporating alternatives into the portfolio at least give us the potential for solid returns.

 

[samclem]

I am very skeptical of anyone who thinks they know what "the right" asset allocation is.

Determining the optimum asset allocation is simple. . . retrospectively.

 

[Options]

See also this on Jim Cramer (yet another "authoritative" huckster's hype peeled back revealing a track record of bad advice):

Mad Money. Questionable Ethics.

Cramer apologists don’t argue with the data (because they can’t), but often claim he is “just an entertainer.” The implication is that no one should take his stock-picking advice seriously.

The same could be said for the author of this Forbes article (as well s Jane Bryant Quinn's latest fluff piece about planning to celebrate your 101st birthday). Read MSM business rubbish with care. Better yet, don't read it all.

 

[Big_Hitter]

Now... lemme see... should I listen to this quack Sizemore or Warren Buffett

Buffet of course

I guess I got in the wrong career

Looking back, seem like I should have gone for a CFP/CFA (trivial compared with what I had to go through) and shot from the hip all day, except for Wednesdays and Fridays when I'd be playing golf

 

[ExFlyBoy5]

Let's see:

• He recommends 50% of your portfolio in alternative investments, and his firm just happens to specialize in them. Sizemore Capital "Specializing in income portfolios and alternative investments for high net worth individuals and families" Sizemore Capital
• And when asked whether his AA will outperform a traditional AA, he 'doesn't know, no one does.'

Sounds like more, you can't do this without our help (chasing returns), it's too complicated - another self-serving [-]article[/-] sales pitch. Pass...

Yep. I am mad that I spent the 180 seconds reading it when I could have been more productive watching this:

Bottom line: Diversify and stay off of Forbes.com

 

[BreathFree]

Considering I do not have any bonds, I liked and agree with the article. Rental income has been my salvation and ticket to FIRE.

I have rentals for the sole purpose of it being an alternative to stocks and bonds. I still own stocks and bonds, but I'm not trusting of them. I feel I am only in them because the general consensus is that is the way to go and history seems to support them as a means to FI.

 

[Options]

I have rentals for the sole purpose of it being an alternative to stocks and bonds. I still own stocks and bonds, but I'm not trusting of them. I feel I am only in them because the general consensus is that is the way to go and history seems to support them as a means to FI.

Yes, but you have to have the temperament and personality to deal with owning rentals. I have two friends who are doing quite well, one with rentals all over the U.S. I have no doubt they will succeed. OTOH, as you've probably experienced, there are some very smart and clever people engaged in the business, and it's easy to lose your shirt if you don't know what you're doing, particularly when using leverage. Southern California is been littered with crash and burn real estate investing stories.

I know enough about investing to know Warren Buffet is speaking about me when he mentions "know-nothing investors" who should stick with basic index funds. I do not trust my capabilities with fancy spreadsheets or any alternative investments. This is what is known as the "circle of competence", and mine is quite small. In fact, the more I read the more I realize how much Ill never know and how much trouble I could get into as a result. As such, I view owning rental properties as belonging in what Charlie Munger refers as the "too hard" pile, as in they are something I should leave alone. It's been said success in investing isn't so much about getting everything right as much as it's "not doing bonehead things." Stepping out of one's circle of competence is considered a bonehead thing.

Forbes and business publications like it exist for the sole purpose of funneling reader eyeballs to advertisers. It's good to remember that when coming across bogus articles like this one.

 

[BreathFree]

Yes, but you have to have the temperament and personality to deal with owning rentals.

I agree 100%. I did not mean to imply everyone should own rentals. Rentals were just a way for me personally to diversify some of my investments away from the stock market. If there was a more passive way to do that, with a similar risk profile, some inflation protection, and monthly income, I would be all for it. I have no pension, and annuities, to me anyway, seem impossible to value since future inflation is an unknown.

 

[Mulligan]

I agree 100%. I did not mean to imply everyone should own rentals. Rentals were just a way for me personally to diversify some of my investments away from the stock market. If there was a more passive way to do that, with a similar risk profile, some inflation protection, and monthly income, I would be all for it. I have no pension, and annuities, to me anyway, seem impossible to value since future inflation is an unknown.

I respect anyone who can become a landlord. Definitely great benefits to a successfully ran rental program. I just felt sorry for some landlords. Ones I have known always getting ripped off or taken advantage of with some sorry story. Pay your rent first, why is that such a difficult concept for some renters? I had one tough as nails friend back in the day... After a few passes, he would knock on the door and tell them either he was going to get his rent money from them, or from the insurance company with their dead body in it. They always paid after that line...Because I think he meant it too.


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[gayl]

My son is in process of evicting his tenant who stopped paying rent in December. I say in the process, because although the court evicted her at the end of April, she had not gotten out. The sheriff locked her out the first week of June. She broke in last night, messed the place up, made food, and evidently got stoned. So here he sits with a ton of repair bills, somewhere in the neighborhood of $9000 and cannot get her to stay out. According to friends and a nephew who have rentals, he needs to plywood all doors and windows in order to discourage her from being there which wI'll dray rentire out again. He has called the police on her but unless she's inside they can do nothing.

Had a business after 'retiring' but self employment is more laborious than working for someone else

I'll stick to stocks