A diversified enough?

[Petunia 100]

this question is tangential to my point. however, you can get diversification benefits from investing in different asset classes IF their correlation is materially lower than 1. 2008, 1987 and the early 1980's are periods when that did not work - so there were no diversification benefits. other periods were better.

the problem is that when moving a portion of your portfolio from a risk free asset to stocks, and diversification benefits to lower risk would normally be swamped by the increased risks of having the position in stocks. so diversification is a minor point here.

It may be tangential and minor, but it is the very question QuarterMillionMan is asking, no?

[smk]

I'm curious as to what letter grade one might assign to me given these facts in regards my future retirement forecast... My grade that I would give myself would be a "B."

personally i took it that he wanted to know if he was on track for retirement using his strategy. there risk level is more to the point than diversification...but i may stand to be corrected by QuarterMillionMan if he disagrees...

[kv968]

if you look at the numbers, when you increase froma zero risk weight to say 20% in stocks, say you go 50-50, your risk goes to something like 10%. by diversifying within stocks at the same 20% risk level you might bring it down to 9%. the major move is from 0 to 10% area and diversification is compartively minor with a 1% benefit. that was the point.

i think TIPs returns since they were originated in 1997 were in the range of inflation + 2-2.5%. that probably would not happen now if you bought 30 year TIPs, but over the long run you could argue you can do better than 0% even after taxes.

i hate to say it, but it looks like you are arguing that people who are vulnerable and may not be able to accumulated enough wealth to retire need to throw caution to the wind and speculate in the stock market. so far that play has not worked out so well for the defined benefit pension funds. instead they could look to cut expenses, move to a no tax state, play with the timing of their pension distributions, try an inflation protected annuity when they get older, fnd a job they really like and do it into retirement. there are other options...

I'm not arguing that people need to "throw caution to the wind and speculate in the stock market" but I am saying that people need more return than just 2% (a.k.a. inflation) per year. What are they supposed to do, put nearly 25% of their paychecks into TIPS just in order to possibly have enough money accumulated for retirement?

[humandraydel]

Is this post for real? Seems like a troll post to me.

No, you are very obviously not diversified.

[QuarterMillionMan]

personally i took it that he wanted to know if he was on track for retirement using his strategy. there risk level is more to the point than diversification...but i may stand to be corrected by QuarterMillionMan if he disagrees...

Thanks to all for the great information and advice. I'm not sure I understand some of the technical stuff though, remember my educational background is not in finance/investments. The most important thing that I've learned from this thread is that I'm not well diversified in regards to different assest classes. I guess I consider myself to have a bearish perspective on the markets and as a result I'm over-weighted in precious metals. I've heard a general rule of thumb that a person might own 5% to 10% in precious metals. I didn't realize that I'm almost at about 33%. I'll need to start diversifying my portfolio (I was basically diversifying within one asset class).

[smk]

I'm not arguing that people need to "throw caution to the wind and speculate in the stock market" but I am saying that people need more return than just 2% (a.k.a. inflation) per year. What are they supposed to do, put nearly 25% of their paychecks into TIPS just in order to possibly have enough money accumulated for retirement?

historically the returns on TIPs have exceeded inflation...if that's not enough for someone, there are other options they can consider within the context of their lives which an improve their situations without increasing investment risk. then if there is enough of a safety net, they an consider whether they have the capacity to make good decisions in some riskier assets. if they do and they have the ability to accept negative returns in stocks, they can see if they can gain some of the benefits. investing in stocks is not a guaranty of higher returns. you can also lose your shirt...