How about this simple portfolio?

[Scanner]

My friend is a nephrologist and not too interested in investing and bounces ideas off of me. I think he's being hit by annuity salesman of some sorts and his father and others are trying to steer him away. He works for the VA so he has multiple options and accounts available to him and he makes about 200K/year. He's 43 and never married.

Anyway, he admits he likes the idea of an annuity because it's safe and secure in his mind to give you an idea of his "risk tolerance." Yet, he sees the allure of gold/silver and buys into that psychology as well.

So. . .I came up with this (pretty simpleton):

20% Stocks (mutual funds)
20% Corporate Bonds (ditto)
20% Real Estate (REITS)
20% Cash (treasuries or just CD's)
20% Precious Metals/Commoditis (ETF's)

I think it spreads all kinds of risk around pretty well - principal risk, market risk and inflation risk.

Agree? Disagree?

[disneysteve]

I think a 43-year-old should have a lot more than 20% in stocks for the long run.
I think 20% is way too much in speculative stuff like commodities and especially precious metals, especially now.
So I'd boost the stock exposure, sharply decrease the metal/commod. exposure, lessen the bonds and real estate. The 20% cash might be high also but would be the part of your plan I'd have the least issue with.
And I'd certainly avoid annuities at all costs.
If he isn't interested in learning about investing, a target retirement fund would be a good way to go - broadly diversified, very low expenses (with the right company) and risk adjusts with age.

[97guns]

I think 20% is way too lean in speculative stuff like commodities and especially precious metals

[kork13]

Personally, I'd change it up slightly:
40% Stocks (mutual funds)
20% Corporate Bonds (ditto)
10% Real Estate (REITS)
10% Cash (treasuries or just CD's)
10% Precious Metals/Commoditis (ETF's)
10% International stocks (ETF/mutual fund)

I'd be okay with the 20% corporate bonds, as there are some good opportunities there, and it will provide good stability for a guy almost on the 'home stretch'. International gives broader exposure, diversification, and overseas opportunities. And I agree with DS, he needs more stock exposure for growth potential.

[Scanner]

Well, youngguns hit the crux of the controversey of this portfolio for 2010 and beyond and I did tell him that it is controversial that I have 20% of a portfolio in precious metals.

A legitimate case could be made either way - 5 or 10% max or some people may go as high as 33%. So I kind of took an average and because he is conservative, I placed his cash position relatively high to offset some potential long term principal loss.

That was my thinking anyway.

He liked the simplicity of it.

[disneysteve]

He liked the simplicity of it.

Simple does not necessarily equal good.

It would be simple to keep 100% of his money in his non-interest bearing checking account. That doesn't make it a good idea.

[jpg7n16]

Stocks are good for long term growth (5+ years) - does he need long-term growth?
Bonds and real estate are good for income - does he need income?
Cash is very susceptible to inflation risk - how concerned is he about inflation?
Silver, gold and commodities are extremely volatile - how does he feel about large amounts of volatility?


Given these factors, and the answers you posted in posts above - it seems like your 'simplified' asset allocation has overweighted his portfolio in all the wrong areas for his goals/preferences.


I agree with DS's view that simple doesn't necessarily equal good.

[photo]

I've never seen a portfolio mixture quite like what you have suggested. It sounds like he really would prefer a passive approach to investing, which is what DisneySteve suggested with a target retirement fund, which balances the assets of the fund depending on your age. Expense ratios are usually quite good.

I have no direct experience with annuities, but everything I've heard suggests they're a very bad deal with the exception of the person selling you the annuity.

[sandrark]

If he wants easy or simple, find a "lazy allocation" that makes sense. A great blog/post on that theme:

The Lazy Way to Investment Success

Since my employer has an agreement with Fidelity, I've mimicked the Fidelity Lazy Portfolio Margaritaville style:

At last! Winning 'Lazy Portfolios' using Fidelity funds - Paul B. Farrell - MarketWatch

Still simple, but with a little more research into historical returns...

Sandi

[Scanner]

Well, yes, simple isn't always good, but it's better than complex.

I thought it was a good portfolio, considering he's 40ish years old and it places him 40% in debet sector investments (bonds and treasuries) and 60% in equities.

I know it appears a little contrarian (and it is - a little) but I don't think it's all that wildly principal risky either. He's quite aware gold/silver could fall and remain in the dumps for years so his eyes are wide open on that one.

Yeah, it's a little off the beaten path but not that far IMHO.

I will admit though that oh, around 2006, I tended to favor "equal mix" portfolios and stopped believing the overweighting of stocks as a general tenant of investing. That bias probably does show through in my recommendation and I should tell him that and disclose my philosophical bias there. I have always like "equal parts" portfolios since then. I should tell him the above you wrote is more the "norm" or "normal."

Or the above will bring "normalcy" to his portfolio. Is it "normality"?

I always got those two confused

[ez1]

I agree with others that for someone his age and stage, it makes sense to have more long-term growth prospects (i.e., higher percentage in stocks). Yes, you're giving him 60% equities exposure, but 40% of that is not in stocks, which historically have done the best long-term.

My suggestion would be:

75% target date fund

but because the target funds usually don't include exposure to real estate and commodities

15% Precious metals/commodities
10% REITs

[Snodog]

If he is as risk adverse as you say he could go with something like:

60% 5 Year Treasuries
15% Gold
15% US Small Cap Value
10% Int. Small Cap Value

1972-2010 CAGR 10.93% with yearly rebalancing

1972	17.17%
1973	7.00%
1974	8.04%
1975	15.17%
1976	16.46%
1977	14.45%
1978	17.09%
1979	25.97%
1980	11.14%
1981	3.12%
1982	24.67%
1983	12.65%
1984	6.85%
1985	24.11%
1986	18.25%
1987	9.31%
1988	9.02%
1989	12.67%
1990	-0.39%
1991	14.20%
1992	6.52%
1993	17.84%
1994	-0.69%
1995	16.87%
1996	3.84%
1997	4.47%
1998	5.62%
1999	1.81%
2000	8.58%
2001	7.53%
2002	11.36%
2003	19.06%
2004	9.90%
2005	7.77%
2006	10.97%
2007	9.72%
2008	-0.50%
2009	11.33%
2010	14.97%
2011     6.50% as of 8/30/11

Only 3 losing years and all less than 1%. I've been tracking this portfolio in Morningstar portfolio tracker the last couple of years and it seems pretty solid year to year and even day to day. Never gaining too much when stocks go up and not losing much when stocks go down. The key is to look at the whole portfolio and not the individual parts(which may be behaving wildly). Theory is that money has to go somewhere and if it flows out of stocks it flows into treasuries/ gold and vice versa.

You could build it all with low cost etf's such as:
60% IEI
15% PRFZ
15% GLD
5% PDN
5% DGS

*Disclaimer- I am just some idiot on the internet and not an investment advisor. Past performance is no guarantee of future performance.

[disneysteve]

20% Stocks (mutual funds)
20% Corporate Bonds (ditto)
20% Real Estate (REITS)
20% Cash (treasuries or just CD's)
20% Precious Metals/Commoditis (ETF's)

Well, yes, simple isn't always good, but it's better than complex.

he's 40ish years old and it places him 40% in debet sector investments (bonds and treasuries) and 60% in equities.

But your portfolio isn't 40% debt and 60% equity. It is 60% debt/fixed income, 20% equity and 20% speculation. That's exactly my problem with it. I think a 40 year old needs much more equity/growth exposure.

And I would disagree that simple is better than complex for the same reason I stated earlier. Just because it is simple doesn't mean it is good. I have a relatively complex portfolio, many different funds, many different accounts. I don't think it is bad at all but it most certainly isn't simple.

[Scanner]

All good dissenting opinions and criticisms. I will link him to the thread and let him digest it all. I still stand by my recommendation. If not gold, then a general commodity basket. The world ain't getting any bigger and things aren't getting any cheaper to make and find. A modern portfolio must have commodity exposure and more than just a token position.

[jpg7n16]

If he wants easy or simple, find a "lazy allocation" that makes sense.

You could always go with a 100% target date fund.

Super easy and always properly allocated. Hard to be easier than that.


If risk averse, target a few years too early.