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Is This 80/20 Portfolio the Best Plan for Your Money?

By Bill Bonner on November 4, 2015

POITOU, France – It is wet, but not cold, in this area of France this morning. Rain splashes on the copper flashing. The windowpanes fog over. We have made some tea and settled in to our library for a long day’s study.

One of the pleasures of life is having a good place to work. The library is an old octagonal building, with a cement floor and brick walls, that had been used for laundry. We replaced the windows, put in a gas fireplace, and lined the walls with bookshelves.

You never know how these projects are going to turn out. We have been building and remodeling all our lives; this is one of the successes.

It is warm, cozy, richly decorated with books and old guitars… and a delight to be in. We look forward to opening the door in the morning. We regret having to close it at night…

Onward!

Time to Be in Stocks?

Yesterday, we learned from Wall Street Journal reporter Brett Arends that this is the best time to invest in the stock market:

The best estimates argue that over the long term, stocks have beaten bonds, cash and deposits by an average of about 4 to 5 percentage points a year. Compounded over time, that has amounted to an enormous difference. After 30 years, someone who invested in stocks has often ended up with three times as much money as someone who kept it all in cash and bonds.

Meanwhile, those gains have typically all come during the winter months. Peculiar, but apparently true. The most recent academic study, which has looked at stock markets around the world and went back in some cases more than 100 years, has found that winter has beaten summer pretty consistently in almost every country and almost every period.

Point?

If you want to do well with your investments, you will buy stocks… and buy them now.

Arends goes further. He tells us how much of our money we should have in stocks. Citing the work of valuation expert Andrew Smithers, he concludes that…

…a long-term investor who wants an easy life should keep 80% of their money in stocks and 20% in short-term bonds or cash.

But wait. Smithers believes stocks are very expensive now (as we do). And everybody knows you can’t make money by buying high and selling low. You have to do it the other way around. So, what do you do?

“Buy foreign stocks,” says Arends.

Putting all this together: If history is any guide, you should log on to your online brokerage account today, or at least this week. And if you are trying to save for a retirement that is more than five years away, you should make sure that your portfolio is at least 60% allocated to global stocks, even if you’re nervous about the market, and more if you aren’t.

Meanwhile, CNBC reports that this could turn out to be the worst time to buy stock in eight years:

Stocks with big buyback programs are struggling this year, and according to one technician, a similar lag has previously preceded two market crashes.
Out of the nine S&P 500 companies with the biggest buyback programs, four are down in stock price over the last year. Exxon Mobil, IBM, 21st Century Fox and Merck are all negative for the year, and Oracle and Intel are fighting to hold onto incremental gains.

Strange as a $3 Bill

What to make of it?

Nothing. These technical studies are entertaining. But they are useless from an investment point of view. The first focuses on the last 30 years. It tells us that people who bought and held stocks did very well.

Well, big whoop!

Thirty years ago stocks were cheap. They had a lot of room to go up. If they had been expensive when the period started, the gains would have almost certainly been more modest.

In the second place, this period was extraordinary, unique, and as strange as a $3 bill. It was marked by the biggest rush of money and credit into the world’s asset markets in history – with an increase of $12 trillion in world foreign exchange reserves.

Where was all this money going to go?

Meanwhile, a new study by Patrick Artus at Natixis Research shows that almost none of the base money increases as a result of QE over the last seven years led to the kind of increase in money supply that boosts consumer prices and stirs economies.

QE benefited Wall Street, not Main Street.

Which is why the rich got so rich. And why real economies did not benefit. And why wages did not rise. And why the whole program was more larceny than monetary policy…

…and why stock owners made so much money.

Now, those stock market investors think they are geniuses. Analysts add the numbers and confirm it. Reporters give out the word…

…and a whole new generation of investors believes it. They want to make money, too. What better way than to do what worked for their parents? Buy stocks!

Alas, past performance is no guarantee of future results. The fix was in. And just because some lucky stiff made money in a rigged market over the last 30 years doesn’t mean you will now.

Regards,

Signature

Bill

tech-insight

[Editor’s Note: We’ll soon be launching a new investment advisory, Exponential Tech Investor, to help you profit from game-changing innovations. Below, editor Jeff Brown identifies an exciting area of breakthrough technology.]

As you step through the portal, it’s dark and cool. You are in a research facility in the future in search of an alien life form. You can hear the hum of the machinery and cool air on your face. You have entered a virtual world created by a company called The Void.

The Void has built the first of many virtual reality (VR) game facilities in Lindon, Utah. It is not experimental technology; in fact, you can go there today and experience its “beta” version for an early view of the future of VR. Full commercial deployments will begin early next year and additional facilities will open up.

Before you say, “but these are just games,” think about this… The video-gaming industry will generate more than $110 billion in revenues this year… and VR is forecast to be a $30 billion business by 2020.

It is not just about gaming either. Imagine learning in a virtual environment. What if you could see what a forest looks like through the eyes of a wolf? What if you could explore the ocean through the eyes of a dolphin? Or view an organism from the inside out?

The applications for skills training are also immense. Training using VR is less expensive and allows the learner to avoid making mistakes in the real world.

Believe it or not, real work will be conducted in a virtual world as well. With advances in network bandwidth, microprocessor power, and graphics processor speeds, people will telecommute to virtual offices, where they will work and interact with colleagues in a wholly digital world.

Another interesting company that I am following is called High Fidelity. It was founded by Philip Rosedale, the original founder of Second Life. If you haven’t heard of Second Life, it was a fantastic technological and social experiment. It is a virtual world accessible via your computer that functions just as the real world does. Everyone has an “avatar” that represents who they want to be in this second life.

Second Life launched in 2003. But technology has changed exponentially in the last 12 years. Today, High Fidelity is taking advantage of all of those advancements to create a completely new virtual world. Rosedale and many others believe that much of future education, work, and play will exist in virtual environments.

P.S. If you want to be among the first to learn about my top picks for breakthrough tech stocks on the verge of huge gains, follow this link.


Featured Reads

The U.S. Dollar Has Less Than a Year to Live
Following an “invitation only” meeting with central bank heads, finance ministers, deputies, and leading economists from around the world, currencies expert Jim Rickards has a critical warning for all Americans.

China Is One Step Closer to Currency Reserve Status
The IMF has told China in that reserve currency status is coming soon for the renminbi. Inclusion in the IMF reserve currency basket will help push China toward being a more market-oriented economy.

Why It’s Better to Own Gold Stocks Than Physical Gold
Top asset allocation expert William Bernstein says he’d rather own gold stocks than gold. Gold stocks are a leveraged play on gold. So even a tiny allocation to gold stocks gives you sufficient exposure to the metal.


Mailbag

In today’s mailbag, we “pivot” to readers who weigh in on the Diaryissue titled “Time to Keep Your Cash in the Microwave?

Be careful – all of that pivoting and pivoting and pivoting could make you dizzy and you could fall down. This, of course, would result in a truly pivotal event.

– Stan H.

Your definition of pivot is not only imprecise, it is not really descriptive of the current actions of the Fed.

The verb “to pivot” means to move or change direction without moving the fulcrum or “pivot point.” Thus, a basketball player holding the ball and seeking to avoid her opponents can legitimately pivot and move in any direction without dribbling the ball, so long as she does not change her pivot point.

The Fed is busy creating the illusion that they are going to move soon, but careful observers like Jim Rickards know that they would change the pivot point only at their (our) peril.

– Pete H.

I love Bill Bonner’s wordplay. Today, he introduced the verb “pivot.” Then he used it, mock-obsessively, at every opportunity.

Great work. I love it.

– N.W.M.

I love reading Bill’s commentary.

I don’t always agree with his views, but his hilarious reporting of global financial activity and its possible outcomes always brings to mind that brilliant Shakespeare quote on the human condition: “Out, out, brief candle! Life’s but a walking shadow, a poor player that struts and frets his hour upon the stage and then is heard no more: it is a tale told by an idiot, full of sound and fury, signifying nothing.”Macbeth quote (Act V, Scene V).

One short life, get some happiness while you can!

– Diana D.


In Case You Missed It…

Our colleagues at the Laissez Faire Letter are offering FREE copies of their new book – Spy Secrets That Can Save Your Life – to Diaryreaders.

Written by former CIA officer Jason Hanson, it details secret spy-agency strategies you can use to protect your home, your privacy, and your loved ones from disaster or violent criminals.

Go here now to get your copy before they run out.

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2 Comments
  1. Marc

    Despite Brett Arends’ recommendation, I have found that the best gains on stocks and mutual funds are directly related to the price paid at the point of entry to the position; if stocks are overvalued now then it would be prudent to wait for a correction before buying.

    Reply
  2. onebornfree

    “a long-term investor who wants an easy life should keep 80% of their money in stocks and 20% in short-term bonds or cash.”

    Bill, such a plan has zero protection against either persistent inflation, nor against persistent deflation [although the cash might help a little].

    And since the future remains unknowable, both inflation, or deflation, as always, remain totally “on the cards”.

    So the answer is “no”, it’s not a good long term plan, for anyone other than gamblers/ speculators :-).
    Regards, onebornfree
    http://onebornfreesfinancialsafetyreports.blogspot.com/

    Reply

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