Personal Asset Allocation

Got paid my bonus…wondering what to do with the money!!! my current allocation is 10% equity…90% cash While im not too comfortable with equities right now…(Yes Im a believer of the gloom & doom scenario)…the cash is earning a ROR that is just a bit above inflation… Wondering what to do with the cash to generate a half decent real return! Assuming a long only strategy, what is everyones ‘tactical’ asset allocation for the market over the next two years, given the current environment? BTW, Im not in the US. I am currently in Australia.

star city casino…19 black…the lot…!

Syd_RE Wrote: ------------------------------------------------------- > Got paid my bonus…wondering what to do with the > money!!! Enjoy these days…

sell the 10% equity else you would be left with only 90% of your bonus…

For starters, unless you are 80 years old I’d get your cash down and equities up. Let’s paint by color for '08 and '09. What’s it gonna be?

X, I like the chart! But like I said…Im not comfortable with equities given the current economic scenario. Over the longer term, of course I will move to a majority equity weighting… but is there any other asset class that you think will generate decent real returns over the next year or two? Given I think equities are going to go have negative returns over the next year (maybe two), for me, outperforming equities is not the objective…I just want to generate a positive real return. Also, I plan to deploy into equities as opportunities emerge over the next year or two.

seriously tho’ if you’re in oz, there are lots of stocks that have been hammered in the last 6 months (guilt by association). There are some great buys that have been over-sold. I’m not talking picking turn-arounds, but great stocks which are dirt cheap and will probably re-bound quickly. Some trading on crazy P/CF, low debt, solid management, etc (can’t name names because I own a licensed dealer, so I would have to give you a truckload of paperwork before I could mention stock codes) But they are out there - plenty of opportunities if you do a bit of work. Best time to buy is when everyone else is selling…take a few punts and see what happens…

null&nuller, I agree that there probably are some standouts… Some of the better companies are trading at crazy crazy dividend yields! but again…my thoughts on the broader equity market are pretty negative…which is why i probably dont want to put any more money into equities right now. Can you name industries if not stocks? I’d definitely like to take a look…and happy to be wrong on my view!

Currently have 40% of my net worth in cash equivalents by choice. The other 60% is invested in a wide range of asset classes including stocks, bonds, and index/mutual/hedge funds.

That’s a great chart. i bought some stock indexes today… mainly XLP and EFA. I hope we don’t have a black monday!

hi virgin - how are your aussie stocks going? EFA - probably not a bad med/long term bet - Eurozone/Japan slowdown already built into price + rest is looking ok + its a punt on USD falling further XLP - very cyclical - i guess you’re punting on a quick/short US recession + bounce. The odds are probably with this outcome - despite the gloom and doom talk…+ its probably a good domestic inflation hedge as well. any luck on the job front? cheers

hey null person, I sent you an email. Xlp is consumer “non-cyclical” so if it actually is “cyclical” I can sue them for misrepresentation & false advertising.

hi virgin, yes xlp looks less cyclical on the face of it - low daily beta and low daily volatility (full of beer, soft drinks, tobacco, walmart, p&g, etc), but over a business cycle it suffers along with general consumer recession cycle. Eg peaked at 29 at the cyclical peak at end of 2000, but then lost 38% over 2001&2 (compared to s&P which lost 45%). On the other hand XLY (consumer cyclicals) has much higher beta and daily volatility, but only lost 30% during the 00/1 recession. Then XLP staples took 7 whole years to recover to previous peak - just reached at the peak late last year (exactly the same as the S&P) - so it’s still well behind the late 1990s level in real terms. But XLY cyclicals only took a year to recover and reach new highs (by end of 04) and has since doubled from the low up to the peak last year. So it depends on whether you think this US slowdown will be worse than the 2000-1 mini-recession - that one cost “non-cyclical staples” 38%, this time around its only down 10%-ish - so far so good - middle america is hurtin’ but “officially” no sign of a broad recession yet according to the economists! good to hear from you… cheers.

That is an excellent point. I never considered that angle. Consider these points: Dividends… During the last recession the dividends grew an average of 10% per year (from 2000 until now). At it’s peak, prior to last recession, the yield was under 1%. At that time interest rates were higher across the board. You could get over 5% for your cash. The current dividend is well over 2%. Ironically, interest rates are much lower now and you can only get 2% for your cash. During the 70’s (an inflationary time) the “nifty fifty” got bid up. I haven’t done much of an analysis of the 70s but I think XLP will be a safe haven and a nifty fifty type investment with untapped pricing power. XLP has the highest weighted average ROE of any sector in the S&P(~30%), yet a slightly BELOW average payout ratio(43%). There’s some CFA math(I forgot it or will probably screw it up) that points to a sustainable growth rate in excess of 17%. If you use the dividend discount model to come up with a fundamental value for XLP, you get $31 per share… assuming 5% growth and 7% discount rate. I believe both the growth rate and the discount rate i used are too bearish. That being said… I usually just buy XLP when the market blows up because when everybody is selling I just have to buy something.

sustainable growth rate of anything near 17% sounds un-sustainable to me… Especially a broad fund with 80-odd stocks in it. Logically an 80 stock fund shouldn’t grow any more than the long term nominal GDP growth rate = say 7-8% excluding divs - over the the long term. The ROE is phenominal: Altavista shows 5 yr av ROE at 22% pa. But that’s from bottom of cycle to the top. Through the cycles it should be more or less the overall market ROE (say 15%) But the pure relative div yield idea makes sense. I haven’t tracked DY for xlp but DY is probably mean-reverting over a cycle - so sell when DY is low, and buy when it’s high. + I see that 30% of revenue is foreign so eps might also benefit from falling USD if US rates remain low relative to rest of the world.

I like the casino stocks at current levels - it’s a sure thing that they will come back when the economy comes back, and they’ve fallen mightily in the past 6 months. MGM is a big player, but I’m looking at BYD - it’s down over 65 percent from its high, and has got to be near a bottom. I’m buying for the long term, and this industry at these levels looks too good to be true…

Syd-Re Put your bonus into Rabobank’s online savings account - a 7.3% return with zero risk is going to be tough to beat over the next 12 months in the equity markets.

Could you give me a link to the Rabobank 7.3% deal? I found the website but I didn’t see no 7.3%.

Here you go, the online savings account