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Asset Allocation guidelines from Random Walk Down Wall St.
Old 12-01-2007, 01:51 PM   #1
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Asset Allocation guidelines from Random Walk Down Wall St.

I just finished reading the 2007 edition of A Random Walk Down Wall Street by Burton Malkiel. I had read the 1996 version, and this one is updated to include the intervening years and the rise of new classes of investments like ETFs. There have been 2 other editions in between these two.

As always, a classic read.

Here is the Asset Allocation he recommends
Burton Malkiel - Asset Allocation Guidelines

(I don't know how to do tables here, hence the link)

Comparing it with the 1996 edition, there was no mention of REITs or Emerging Markets in the older edition. The overall asset allocations seem more or less the same except that Bond allocation is reduced by the amount recommended for REITs. International allocation is adjusted to include Emerging Markets.

There is less slice & dice advice in the stock allocation - "Two-thirds in US stocks with good representation of smaller growth companies and one-third in International stocks including emerging markets" The earlier version had more specific recommendations. Going by the rest of the book, I do not think he's emphasizing small-growth, but rather just small cap as an asset class.

Another point that struck me is how everyone seems to be including REITs and Emerging markets into their asset allocation AFTER the run-up of the previous few years. Isn't this exactly what we're warned against doing?

For people just beginning to get into investing for FIRE, this is one of the must read books in my opinion along with the excellent ones from Bernstein. I'm going to try and spend more time reading books than loitering around in this forum
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Old 12-01-2007, 02:07 PM   #2
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Originally Posted by walkinwood View Post
Another point that struck me is how everyone seems to be including REITs and Emerging markets into their asset allocation AFTER the run-up of the previous few years. Isn't this exactly what we're warned against doing?
Yes, sort of...but it wasn't too easy for a lot of people to invest in diversified REITs or diversified emerging markets as an asset class more than a decade ago. Yes, some funds were out there already, but they weren't all that well known and I'm not sure their ability to diversify and reduce correlation of assets wasn't as well known as it is today.

I've been including them as asset classes since 2001.
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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Old 12-02-2007, 05:28 PM   #3
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Yes, I just finished (re-) reading the Random Walk recent edition. An excellent book, to be sure. I'm not qualified to comment on the asset allocation except in general terms. I read a lot, and it seems that every author has different recommendations. I think the nobel prize winning idea is just that you SHOULD have your assets diversified, not entirely in (say) Enron stock! Even the very simple portfolios -- such as the Scott Burns "Couch Potato" which if I recall, is just the Vanguard total stock market and a Vanguard Bond fund, will probably get you 95% of the way to good diversification. Or you can go crazy and have ten or twenty sector funds or ETFs and slice and dice the pie any way you (or your over-paid advisor) would like.
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