... I personally have decided to use the S&P 500 and stop further in depth allocations such as much discussed finer granular reits, mlp's, utilities etc. S&P500 contains all of the aforementioned within the index. ... The argument can be made for more granularity outperforming the S&P500, but i will live with the simple solution. I like the fact mutual funds can easily reinvest dividends/cap gains if needed while some ETF's cannot (easily). I also like the fact that by the nature of the SP500 index it gradually picks the winners for me and discards the losers. just my 2c.
Hi shipwreckedandalone,
Thanks for commenting. (Worth a lot more than 2c). All valid points. It’s not clear to me whether this represents a
portion of your total invested assets or
all of them. I suspect it’s the former. That said, I don’t think the argument for real estate or any other granular asset class rests only on maximizing return. There may be other considerations like diversifying assets (and hopefully mitigating risk), increasing income stream, hedging against the unexpected (rampant inflation, depression, war, tax law changes, etc.)
If I were age 25-40 and gainfully employed I’d be inclined to put
100% into growth (even possibly the S&P 500) and let her ride come Hell or high-water. A single fund (2 or 3 at most) would work fine. Even at age 40-50 that might make sense - but would require a stronger risk appetite. At 70 or older (with perhaps a 20-year life expectancy I believe an all-growth portfolio foolhearty,
unless one is trying to build assets for posterity (estate planning). In that case, long as your own funding is assured for your lifetime, a
100% growth portfolio might still make sense.
To glean an appreciation of how much a
100% S&P 500 investment can fall in a relatively short time we need go back hardly more than a single decade (from Wikepedia):
“The US bear market of 2007–2009 was a 17-month bear market that lasted from October 9th 2007 to March 9th 2009, during the financial crisis of 2007-2009. The S&P 500 lost approximately 50% of its value.”Now - to sit still and endure the pain for
17 consecutive months while watching your total investment egg fall by 50% takes a great deal of intestinal fortitude. And, remember that on March 8, 2009 after
17 months of free-fall, there was no guarantee the market would reverse direction. History has taught that these downturns can persist for much longer. If an
index can tumble 50% in
17 months ... it can just as easily fall 60 or 70% over a longer time. No law says it has to stop at 50%. (It’s likely real estate fared even worse during that period.)
In a nutshell, it depends a great deal on your life situation and ability to endure punishment. I think all of us could do a better job relating our age and years to / into retirement when discussing our allocations. One size does not fit all. Such understanding might benefit the younger
newbies - if any.
PS: Just my humble mumble. I am
not a qualified advisor. Other points of view welcomed.
