Mid-October is the perfect time to revisit and adjust your portfolio’s allocation to bonds, stocks, TIPS, REITs and Commodities. On October 16th I recalculated the preferred allocation to these asset classes and keep an updated chart on the Optimal Asset Allocation page. Most significantly, I am putting a little more money to work in international and emerging stocks. Emerging stock indexes (I recommend Vanguards ‘VWO’ ETF) are trading near 6-year lows due to currency and commodity bear markets, and offer decent risk-adjusted returns – which is about all I can say, no asset class is particularly compelling right now.
For my IRA and 401(K) accounts, I update these allocations twice a year – in mid-October and mid-April. This timing accords with the well-known seasonal timing strategy proven to beat the market with less risk.
Why focus on Asset Allocation?: One study suggests that more than 91.5% of a portfolio’s return is attributable to its mix of asset classes. Individual stock selection and market timing accounted for less than 7% of a diversified portfolio’s return. William Bernstein says in his book The Four Pillars of Investing, that: “The ability to estimate the long-term future returns of the major asset classes is perhaps the most important investment skill that an individual can possess.”
See the Optimal Asset Allocation page for the percentages.