Portfolio Strategy

The current financial meltdown may not be the best time to talk about asset allocation since most people don’t want to open their monthly statements to see how bad the carnage is.  But, at some point you have to open them up and figure out where the damage is and potentially re-allocate. So how should you allocate your assets? The one report that sheds some light on this is the annual World Wealth Report from Merrill and CapGemini.  It decribes how Merrill advices their clients and how they have allocated their billions. Page 15 of the PDF is the money page, below is the summary: (click on the image to download the full report)

33% – Equities
27% – Fixed Income
18% – Cash (preferably NOT dollars!)
11% – Real Estate
11% – Alternative Investments (such as hedge funds, commodities, pe/vc or even lame art work)

Another good resource is David Swensen, who runs the highly successful Yale endowment fund which has about USD 22.5 billion and author of Unconventional Success. He recommends using ETF’s and index funds in the following allocation:

30% – US Equities
15% – Foreign Equities
5% – Emerging Equities
20% – Real Estate
15% – Treasury Bonds
15% – TIPS

Which is right? I believe it’s up to you, but it gives you an ideas of what others are doing. Which may not always wise since some of these clients invested in hedge funds that invested heavily in toxic CDO’s. As they say your mileage may vary.

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