Asset Allocation is almost “GOSPEL” to the investment advisory profession. Classic asset allocation generally calls for a balance between stocks and bonds, depending upon your age and risk tolerance. For instance if you are 60 years old, you should have 60% of your assets in bonds and 40% of your assets in stocks. As you get older, you continue to put more in the so-called “safer” bucket of bonds, and less in the so-called “riskier” bucket of stocks.
WHAT HAPPENS WHEN A FREIGHT TRAIN IS HEADED RIGHT FOR AN ASSET CLASS, HOWEVER?
Data from Best Stocks Now App
One year ago, treasuries (bonds) were ranked #75 out of some 3,400 different investment choices that I track on a daily basis. Interest rates were hitting new one-hundred year lows, and the FED was firing its bazooka at the bond market, artificially holding down interest rates. Treasuries hit a new all-time high almost exactly one year ago today…
That was then, this is NOW. (TLT) is an exchange traded fund that tracks U.S. Treasuries. It peaked at $129 in late July of last year. The descent to its recent low of $106.17 did not occur overnight-it took twelve months. From $129 to $106 is a percentage loss of 17.8%.
“But I am 73 years old,” you say. Academia’s asset allocation model dictates that I am supposed to have 73% of my assets in the bond market. I have found over time that there is the world of academia and there is the REAL WORLD. Almost anyone that was in touch with the real world at all knew that higher interest rates were inevitable.
The FED would eventually start to taper back their bond purchases and REAL market forces would once again dictate the true value of treasuries once again. To not see this coming was like standing in the middle of the railroad tracks and ignoring the warning of an approaching train.
For this reason, I am not an active practitioner of the gospel of asset allocation. Asset classes like stocks, bonds, real estate, and precious metals are cyclical. I believe in strategically moving in and out of asset classes as the economic times and seasons dictate.