Allocate…Part II

Asset Allocation

Above is a link to the World’s simplest asset allocation calculator.  More detailed calculators are found online, which involve asking a series of risk tolerance-based questions.   The best, most-detailed I’ve seen is located at Schwab Intelligent Portfolios.  You’ll need to create an account (not necessarily fund it, simply register to use the tool (this is not an endorsement as I am not an affiliate of Schwab).

The problem that occurs when calculating an asset allocation based on risk tolerance is this; the market environment influences an investor’s tolerance for risk.  For instance, today’s ultra-conservative investor was yesterday’s aggressive investor.  Many reading my blog posting NOW are only reading because 1) my posts are focused on risk  & 2) my readers aren’t as aggressive after last week as they’ve been for the past several months.  The thought and fear of losing money has an immediate and lasting impact on one’s attitude toward risk-taking.

Here’s my advice for my readers: Take a few moments to realize that bull markets do end and they can end suddenly as evidenced last week, not with a whimper.  I am not announcing that last week ended the bull market.  I believe this is a temporary setback BUT…. one may want to use the forthcoming bounce to lighten up on equities and raise cash.  I believe the market will see new, all time highs once again but that could be the final up thrust before more fierce selling takes over.  Use the next big rally (possibly as high as the 3000-level on the S&P 500, by Apil/May ’18) to lighten up and take long term profits.  Lock in those gains, raise some cash as rates are headed higher over the next 12-18 months and you will earn a decent yield from savings accounts and CD’s.

We are most likely at the bottom of the eighth inning of this Bull market.  The good times won’t roll along forever and there will be pain.  This bull market which is the greatest in recorded history (from the March 9, 2009 lows), is long in-the-tooth.  The future returns for equities and bonds are very limited.  The typical 60/40 stocks/bonds asset allocation may tread along at breakeven for the next 5-7 years.  There will be bull markets in other places.  As Jim Cramer says, “There’s always a bull market somewhere.”  The next bull market may be in Gold/Precious Metals, it could be in Uranium stocks.  It’s probably not in US stocks, nor fine art, nor commercial real estate…pie-chart


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