MPT Part 2

There is no mystique about an investment portfolio that is simple. Brokers and management companies can, however, do a lot of hocus pocus and charge big fees if they get you to buy into a complicated asset allocation plan.

I've seen people during this economic crisis who've asked me what they should be doing now and I've said, 'Buy more, reinvest your dividends or go to cash if you cannot stand the pain.' But, people don't want to hear that. Give me magic is what folks want. Failing any mystical sleight of hand, give me something different is what disappointed investors want to hear, even if it could be the worse thing for them.

Asset allocation doesn't work when the whole world went to hell in a hand basket. It didn't protect one dollar when the day of reckoning came in 2008. It just didn't work! You know it, the broker knows it and the investment firms know it. When a pandemic in the order of 2008-2009 hits all bets are off and every single sector went into the toilet. Margin, cash calls and redemptions ripped the stuffing out of investment plans. I, and perhaps you, had a taste of it in 1987 but in 08/09 it was worse. It was monetary panic unlike anything anyone alive had ever seen.

People lost big time with asset allocation and Target Funds (another pet peeve of mine) that were suppose to keep them away from harm.

Warren Bufett doesn't cotton with asset allocation. He buys on discount, officially known as a value investor. He could care less if he owns 100% of something and it's all the money he has in the world as long as he bought it for less than its real value. You can always find something to buy cheap that'll get cheaper. The trick is to find something on sale at a price less that what its real value is. It takes a lot of work to do what Warren does; asset allocation is easier and more profitable for the folks selling the concept.

In a meltdown - asset allocation just doesn't work.

So- what would I suggest?

Here's just one idea. Buy a good dividend paying domestic stock fund and a solid foriegn or world divident paying mutual fund and pick some short term corporate bonds and mix up one-third all or 20-40 or 50%-50%, equities to fixed. See what happens in a year, maybe two.

This is simple; you'll probably have about 600 different stocks in your portfolio with the 2 mutual funds plus a handful of corporate fixed income bonds. The results will be you will have more time to play, less to worry about your portfolio and find it's cheaper and more efficient in the long run.