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Showing posts from January, 2021

Sound Advice: January 13, 2021

Why Asset Allocation is Important Although asset allocation and diversification are words that are regularly used when thinking about proper portfolio construction, more often than not lip service is not followed by actual attention to the process of putting together a grouping of investments that makes sense.   What makes sense is a collection of securities within a variety of asset classes with the objective of gaining worthwhile returns while limiting risk exposure. It's not hard to do. One traditional approach to asset allocation has been a 60/40 split between stocks and bonds, decreasing the percentage allocation to equities as investors get older.   This has not been a bad way to go, but simply thinking in terms of U.S. stocks and bonds overlooks the opportunities available by considering a wider variety of asset classes, including international stocks, real estate, and high yield (a.k.a., junk) bonds. A few years ago, I completed a study of asset class returns from 1

Sound Advice: January 6, 2021

  Does January predict the full year? One of the well-known Wall Street tales is that whatever happens in January is likely to be a good indication of how the rest of the year will be.   In the interest of getting a better understanding of the probabilities, I studied the returns of the Standard & Poor's 500 for the last 50 years.   The results of that study give some assurance that January may point the direction for the months that follow, but the early going is by no means a guarantee of what's to come. Let's start with the reality that over extended periods of time two out of three years will show positive returns.   So when we look at the span from 1968 to 2017, we learn that (after excluding years that showed gains or losses less than 2%), exactly two out of three years registered significant gains.   That was as expected. More interesting is the fact that in the years when the January number was positive, three quarters of the time the full-year result was