Real assets or 70% stocks and 30% bonds

KUCH

When the "kids" (30 yr old son/wife) come asking about investing, you just don't want to make the wrong call. No pun intended.

Their financial advisor is saying 70% in stocks and 30% in bonds, I just don't know if I'm sold on that? What about investing in real assets right now? Gold, silver, art, land, cars may prove to be a better medium risk venture.

Hope your Friday eve is grand. I'm already tired of hearing bout the storm out east. Will the news media please relent and get a grip.

derryb

Except for a home mortgage, they should be getting out of debt first, then invest.

Baley

It depends on income, net worth, investing knowledge and experience, current and future expenses, risk tolerance, current asset allocation, and outlook/ expectations about the future, but generally without knowing the details for most people it's a good idea to invest in paying off all consumer debt first, make extra payments to the mortgage to build home equity, and adding to mutual funds containing growth stocks and dividend stocks, and then the tangible assets broken down further into precious metals primarily but also, depending on again, knowledge and interest, other tangible assets as you mention but be careful with "stuff" because it's easy to buy but more difficult to sell and make money unless they're sharp traders

cohodk

<< <i>Except for a home mortgage, they should be getting out of debt first, then invest. >>




Do you believe we are going to have very high inflation?

A well balanced portfolio should contain many different asset classes. Gold, stocks, real estate are but a few of the types of assets that should be considered.

jmski52

A good career path in a viable industry is a pretty important building block.

DoubleEagle59

<< <i>When the "kids" (30 yr old son/wife) come asking about investing, you just don't want to make the wrong call. No pun intended.

Their financial advisor is saying 70% in stocks and 30% in bonds, I just don't know if I'm sold on that? What about investing in real assets right now? Gold, silver, art, land, cars may prove to be a better medium risk venture.

Hope your Friday eve is grand. I'm already tired of hearing bout the storm out east. Will the news media please relent and get a grip. >>



First ask your financial adviser what's their opinion of Gold.

Prepare yourself for a laugh.

By that I mean, the standard response "well, we here at ______(fill in the blank)_____ recommend holding no more than 5% of your portfolio in Gold as a safeguard against unstable economic times".

tneig

That has been the standard line for many many decades. There are so many variables and multitudes of investment paths, I don't think they should use this standard line anymore.
Important thing to remember is there is no standard, or no standard method, or any two like minded thinkers, and each situation is totally different.
Steered towards a standard model alone is not enough. But its a standard way to start. Fundamentals in their relationship with money and what it is being a strong basis.
The preliminary is always to determine in detail what kind of risk tolerance each of them has, to make long term goals, and determine how much $ they have to put into this.

I would also say a very healthy savings plan for retirement can not be started soon enough or given enough detail. Putting some money in a 401k needs more discussion such as how can the 401k be maxed out or best used. And where is that money in the 401k in? What goals in savings, college savings, emergency money, savings for a car, wealth growth, etc. are good planning thoughts.

Getting an adviser shows they are thinking. That is good.

jmski52

If they follow MoneyLA's advice of only putting 5% into gold or precious metals, they are screwing around with the other 95%. If you assume that everything is ok in the world of investing in stocks & bonds, then have at it. Until the Justice Department starts prosecuting white collar crime in the financial industry instead of aiding and abeting it, and instead of selective enforcement, you can pretty much figure that we're still in trouble.

MrEureka

I would want to know more about their finances before suggesting a portfolio mix.

Consider my own situation:

I don't hold any bullion because I figure my house and my rare coins already leave me with too much exposure to the larger "hard assets" class.

I don't hold any bonds because I figure they can't possibly pay me as much as I'm already paying the bank for working capital.

That leaves my "investment portfolio" containing only equities and cash, and the cash is only there waiting for the next good opportunity to buy some more equities. But in my situation, the complete lack of diversification in my investment portfolio is, in fact, the greatest possible degree of diversification in my overall financial situation.

KUCH

All great reponses.

Agree that there's a lot of factors involved. Currently the only debt is the mortgage and financial advisor is saying 10% in gold stocks. Advisor gets 1% commission.

I keep hearing bonds are in a bubble? If so, why 30% in bonds?

That's my biggest concern right now, bonds?

Weg

Last week the 3rd installment of Barrons Roundtable was released; the roundtable is made up of a bunch of highly regarded money managers. To cover bonds they have Bill Gross, founder of Pimco. His first recommendation is GLD; another member, Felix Zulauf mentions " It's a special sign of our times that the head of the leading bond fund picks gold as his first recommendation".

RedTiger

<< <i>All great reponses.

Agree that there's a lot of factors involved. Currently the only debt is the mortgage and financial advisor is saying 10% in gold stocks. Advisor gets 1% commission.

I keep hearing bonds are in a bubble? If so, why 30% in bonds?

That's my biggest concern right now, bonds? >>



I was concerned about the fees. Is that 1% a one-time fee, or an annual management fee? If it is an annual fee, that will eat most of their returns in the current low yield world. In any case, 70/30 for a 30 year-old is by the book. Where exactly is the money invested? Is it going to be load funds? ETFs? Mutual funds? ETFs tend to be the best way, but can be a bit much to manage for future investments. If load funds at 5% on top of the 1%, run for the hills, the kids can do much better in an Internet age.

Bonds may be in a bubble, but the same has been said for gold and U.S. stocks--no one knows the future. Gold or stocks may well suffer a steeper decline than U.S. Treasuries. Most asset allocation models will rebalance annually, so it doesn't matter so much the initial allocation. What matters more is a high savings rate, and staying the course on whatever allocation is chosen. Some may temper the bond allocation by going with a short or intermediate term duration. If 70/30 is the agreed upon plan, stick to it and rebalance. Even if one or more assets is in a current bubble, if a person can keep contributing, and rebalance, they will do fine in the long run.

The exceptions would be end-of-the-financial-world, fall of the U.S. government scenarios, where stocks and bonds may go to near zero. Think Confederate bonds in 1865, or German or Japanese equities in 1945. That's where metals come in handy. A paid adviser is unlikely to suggest physical metal (which is what most would suggest for modest amounts of money) because they don't get a commission.

I vote thumbs way down on 10% in gold stocks. Despite high prices for stocks and gold, gold equities have been poor performers. To me that suggests some poor fundamentals. If gold stocks can't go up when gold is doing well and stocks are doing well, when are they likely to do well?

As for: art, land, cars, Art and cars tend to require a high level of knowledge and time commitment, along with insider connections to lower the substantial transaction costs and get best access. If a person needs to be advised to get into Art or Cars, they are almost sure to lose money. Real estate, may require a substantial time commitment. Do they want another job? Possibly a low-paying job as rental property managers, possibly with lots of headaches? Another way to play real estate is REITs, but like many other asset classes, they have had a good run.

So bottom line 70/30 is by the book. Nothing wrong with that, though I would be concerned about fees, loads, and ongoing fees. If the adviser is from certain companies that will go un-named, but tend to charge an arm-and-a-leg over time, I would raise a ruckus and try to veto the move. It is a sticky wicket, getting into someone else's financials, even family. There is so much conflicting information, and the paid adviser has his/her well crafted scripts to cast a spell and get their commissions.

Justacommeman

<< <i>

<< <i>All great reponses.

Agree that there's a lot of factors involved. Currently the only debt is the mortgage and financial advisor is saying 10% in gold stocks. Advisor gets 1% commission.

I keep hearing bonds are in a bubble? If so, why 30% in bonds?

That's my biggest concern right now, bonds? >>



I was concerned about the fees. Is that 1% a one-time fee, or an annual management fee? If it is an annual fee, that will eat most of their returns in the current low yield world. In any case, 70/30 for a 30 year-old is by the book. Where exactly is the money invested? Is it going to be load funds? ETFs? Mutual funds? ETFs tend to be the best way, but can be a bit much to manage for future investments. If load funds at 5% on top of the 1%, run for the hills, the kids can do much better in an Internet age.

Bonds may be in a bubble, but the same has been said for gold and U.S. stocks--no one knows the future. Gold or stocks may well suffer a steeper decline than U.S. Treasuries. Most asset allocation models will rebalance annually, so it doesn't matter so much the initial allocation. What matters more is a high savings rate, and staying the course on whatever allocation is chosen. Some may temper the bond allocation by going with a short or intermediate term duration. If 70/30 is the agreed upon plan, stick to it and rebalance. Even if one or more assets is in a current bubble, if a person can keep contributing, and rebalance, they will do fine in the long run.

The exceptions would be end-of-the-financial-world, fall of the U.S. government scenarios, where stocks and bonds may go to near zero. Think Confederate bonds in 1865, or German or Japanese equities in 1945. That's where metals come in handy. A paid adviser is unlikely to suggest physical metal (which is what most would suggest for modest amounts of money) because they don't get a commission.

I vote thumbs way down on 10% in gold stocks. Despite high prices for stocks and gold, gold equities have been poor performers. To me that suggests some poor fundamentals. If gold stocks can't go up when gold is doing well and stocks are doing well, when are they likely to do well?

As for: art, land, cars, Art and cars tend to require a high level of knowledge and time commitment, along with insider connections to lower the substantial transaction costs and get best access. If a person needs to be advised to get into Art or Cars, they are almost sure to lose money. Real estate, may require a substantial time commitment. Do they want another job? Possibly a low-paying job as rental property managers, possibly with lots of headaches? Another way to play real estate is REITs, but like many other asset classes, they have had a good run.

So bottom line 70/30 is by the book. Nothing wrong with that, though I would be concerned about fees, loads, and ongoing fees. If the adviser is from certain companies that will go un-named, but tend to charge an arm-and-a-leg over time, I would raise a ruckus and try to veto the move. It is a sticky wicket, getting into someone else's financials, even family. There is so much conflicting information, and the paid adviser has his/her well crafted scripts to cast a spell and get their commissions. >>



I endorse this well written and well thought out response in spades with one caveat. 10% of the total should be in physical pm's. The balance of the stock/bonds percentages I like. MJ

Bayard1908

Bonds are going to get crushed. Bond prices are negatively correlated with interest rates, and interest rates can't go much lower.

cohodk

<< <i>Bonds are going to get crushed. Bond prices are negatively correlated with interest rates, and interest rates can't go much lower. >>



They could and they have been, but aside from that, they could stay low for a long long time.

Also, rising interest rates could very well strengthen the dollar. Look how high rates in Italy and Spain have kept the Euro afloat.

Justacommeman

<< <i>Bonds are going to get crushed. Bond prices are negatively correlated with interest rates, and interest rates can't go much lower. >>



Actually those shorting bonds the past few years with that mindset have been crushed. They maybe dead. Not all bonds are created equal. Some of my best returns over the last three years outside of stocks have come from the bond market. Certainly not from the precious metals market.

MJ

Bayard1908

<< <i>

<< <i>Bonds are going to get crushed. Bond prices are negatively correlated with interest rates, and interest rates can't go much lower. >>



Actually those shorting bonds the past few years with that mindset have been crushed. They maybe dead. Not all bonds are created equal. Some of my best returns over the last three years outside of stocks have come from the bond market. Certainly not from the precious metals market.

MJ >>



Even Bill Gross was early on exiting Treasuries; however, just because something is inevitable doesn't mean that it's imminent. I believe the crushing of bonds is inevitable. I just don't know exactly when it will happen.

Justacommeman

<< <i>

<< <i>

<< <i>Bonds are going to get crushed. Bond prices are negatively correlated with interest rates, and interest rates can't go much lower. >>



Actually those shorting bonds the past few years with that mindset have been crushed. They maybe dead. Not all bonds are created equal. Some of my best returns over the last three years outside of stocks have come from the bond market. Certainly not from the precious metals market.

MJ >>



Even Bill Gross was early on exiting Treasuries; however, just because something is inevitable doesn't mean that it's imminent. I believe the crushing of bonds is inevitable. I just don't know exactly when it will happen. >>



I would not be in Treasuries per say either. I was early in shorting bonds myself and then stopped fighting the trend. MJ

RedTiger

<< <i>Bonds are going to get crushed. Bond prices are negatively correlated with interest rates, and interest rates can't go much lower. >>



You know, long term, I agree with this. I even wrote a blog entry "Trade of the Century" about shorting bonds. I am short bonds right now (short TBT puts). The problem is that people have been and continue to be early. A lot of very smart people knew that the Internet was a bubble back in 1999, however, many novice shorts lost their entire account because they were early and the bubble expanded beyond what they could imagine. A lot of folks on this forum have been saying that shorting bonds was a "sure thing." However, when there was a lengthy thread about it, it was way too early. If they shorted when that thread was popular, they would be down 30% on TBT by now (TBT is a double short bond ETF).

To me, the fact that Gross, the bond king, is buying gold is more an indication of a gold bubble top, but that idea won't fly here. Just imagine if folks on this PM forum were flocking to U.S. treasuries, that movement would be a flashing red light sentiment indicator of a bubble top. That most folks on a PM forum continue to think shorting bonds is a sure thing, that bonds are sure to get crushed, means little because I see it as normal weather for these climates.

It is a minor red flag that a 70% equity thread isn't full of thoughts about the U.S. stock market also being in a bubble. In the past, there have been numerous threads and posters that were mega bearish on the U.S. stock market. Instead, most of the negativity is directed at the 30% bond allocation. However, PM and bonds are like cats and dogs, so that isn't that strange to me. Like I said, normal weather for this climate.

ShinyThingsInPM

My 2 cents.

For a small bond portfolio don't overlook I-Bonds as an option - they are as safe as Treasuries or TIPs with no risk to principle, inflation protection, some tax advantages

For more info I-Bonds info at TreasuryDirect. Something that paid advisers don't mention as an option ;-)

bronco2078

<< <i>My 2 cents.

For a small bond portfolio don't overlook I-Bonds as an option - they are as safe as Treasuries or TIPs with no risk to principle, inflation protection, some tax advantages

For more info I-Bonds info at TreasuryDirect. Something that paid advisers don't mention as an option ;-) >>



I never heard of an I bond before but the other day my uncle was complaining to me that one of his CD's was about to roll over at .2% He is in his late 60's and he has no interest in stocks . Rolling over a CD at such a low rate doesn't appeal to him. Maybe an I bond or 3 might be the place for his CD money.

Thanks for the link

ShinyThingsInPM

I know discussing CDs does not belong to PM thread ;-) But if your uncle is interested in CDs - I also would recommend looking at Ally Bank (www.ally.com).

The little known secret is you can get their 5 year CD rate with only 60 day early withdrawal penalty. So you can effectively get the much higher 5YR yield that will offset your early withdrawal penalty very quicly (you can calculate it) - there was an artical I think in the Money Magazine a few years back. You would have to call them to find their 5 YR CD rate and confirm early withdrawal policy still in place as they don't publisize them. They're FDIC-insured up-to $250K per product type so you can build a sizable portfolio as well. Some more reading can be found here

fishcooker

It's kinda like fishing. Learn to fish first. Then you'll have an idea about what boat to buy, or not, and what equipment is most successful for you.

Musky1011

tell them go buy some land and become hobby farmers and have jobs ..food is the only thing that will keep you alive..that and guns

derryb

<< <i>Real assets or 70% stocks and 30% bonds >>


kinda hard to tell what's real anymore, including stocks and bonds

Baley

<< <i>

<< <i>Real assets or 70% stocks and 30% bonds >>


kinda hard to tell what's real anymore, including stocks and bonds >>



yep, very confusing and scary world we live in.

Baley

<< <i>When the "kids" (30 yr old son/wife) come asking about investing, you just don't want to make the wrong call. No pun intended.

Their financial advisor is saying 70% in stocks and 30% in bonds, I just don't know if I'm sold on that? What about investing in real assets right now? Gold, silver, art, land, cars may prove to be a better medium risk venture.

Hope your Friday eve is grand. I'm already tired of hearing bout the storm out east. Will the news media please relent and get a grip. >>



So, What did the "kids" end up doing? follow up question, how did their financial advisor's advice perform so far, and how did the "alternate asset" perform in comparison?

and that weather storm, did that turn out ok? is the weather warming up now?

Baley

... or is it getting colder?