Asset Allocation in these Hard Times

February 11, 2009
Sarah Horner



In an article entitled, "Time to redo your asset allocation," Cliff Pletschet talks about the best way to allocate your assets in this terrible economy. 

"An asset allocation, for those who might not know, is the process of apportioning investments among categories, such as stocks, bonds, mutual funds and cash as a means of avoiding the risky practice of putting too much money into one type and thus endangering diversification. Diversification the everyday investor's chief ally, equally important as liquidity (the ability to sell investments without cost or delay) and transparency (the ability to track the current value of investments with ease on a regular basis).

For several years, I have suggested 25 percent in growth stocks, 20 percent in stock funds, 25 percent in mortgage funds and real estate investment trusts, 15 percent in electric utility and telecom stocks, 10 percent in Tennessee Valley Authority bonds and 5 percent in cash in money market funds or bank accounts.

Scratch that. My new asset allocation is 40 percent in blue chip growth stocks, ideally with good dividend yields, 15 percent in real estate investment trusts, 15 percent in electric utility and telecom stocks, 15 percent in TVA bonds, 10 percent in Owens Mortgage Investment Fund and 5 percent in cash in banks or money funds.

That loud noise you just heard was several professional advisors hitting the ceiling, ones who swear by a continually fluctuating asset allocation comprised of stocks and bonds. They want young investors to go heavily into stocks and old investors heavily into bonds, period. They want you to continually feel your age and alter your portfolio as your teeth lengthen (or fall out) on the mistaken belief (in my uneducated opinion) that bonds are safer than stocks."

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