Eddie and Chloe

Eddie                                    Chloe

Between Eddie, our Beagle-German Shepard mix, and Chloe, our Catahoula Leopard mix, it is Eddie—despite his sweet disposition and a 20-pound weight disadvantage—who is the alpha.

So if Eddie and Chloe were investment advisors, you might choose Eddie. After all, as the leader of the pack he must get dibs on all the good stuff, right? Yes, he does—but he’s also not fond of sharing and isn’t afraid to throw his weight around in order to keep what’s his. This bravado and every-dog-for himself attitude is not what you want in an investment advisor.

Buffett’s Bequest: Risky Asset Allocation for Retirement

Buffett’s Bequest: Look before you leap

Warren Buffett’s annual shareholder letters, insightful and generous with advice, are a gift to all investors. This year’s letter is no exception, but his asset allocation advice to retirees and those nearing retirement warrants critical scrutiny:

“One bequest provides that cash will be delivered to a trustee for my wife’s benefit. … My advice to the trustee could not be more simple: Put 10 percent of the cash in short-term government bonds and 90 percent in a very low-cost S&P 500 index fund.” — Warren Buffett’s letter to Berkshire Hathaway shareholders, February 28, 2014

Rebalancing during “traumatic market events”- the whole or half the story?At a recent Fortune 200 Ernst and Young (E&Y) workshop for employees (and spouses, such as myself), the presenter recommended maintaining an asset allocation suited to one’s goals, resources and tolerance for risk. Known as “Rebalancing,” this is standard advice and makes a lot of sense as described below.

However, my ears began to perk up when the presenter additionally recommended rebalancing during “traumatic” market events, not on a specific date each year. Again, this too makes a lot of sense – almost. It may have been a matter of emphasis or the need to get through a lot of material, but the presenter left out an additional couple of critical points that I’d like to add:

Growth of a $1 investment in stocks, bonds and bills: 1926-2013

The growth of a $1 investment chart, a touchstone for many in the investment advice business, is a source of investment wisdom:

  • Stay the course through the ups and downs.
  • “When it comes to investing for your long-term goals, through history’s ups and downs, there’s nothing like stocks.”1
  • “…the predominant trend for common stocks has been upward. Investors should consider this historical perspective when contemplating asset allocation decisions.”2

Seemingly sound advice. But as you prepare for, or settle into, retirement, it’s worth taking a closer look. Is there even more to this chart than meets the eye? 

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