Here is an asset allocation for moderate investors


2021 returns for U.S. equities and a few foreign markets have been exceptionally generous. For example, the vast US market returned over 25% and the Scandinavian markets almost as much. It’s been a tough year for stock market investors not to do well. For example, even investors who used a “standard” 60/40 asset allocation, i.e. 60% US stocks and 40% US bonds, likely earned a return of around 15%.

Currently, the market is relatively expensive with a price/earnings ratio in the 20s, so at best low to mid-single digit returns for 2022 from US equities are a reasonable expectation; however, that is what many forecasters have been saying wrongly about 2021. Also, with interest rates likely higher, lower or even negative, mid to long-term bond yields are in the low single digits. possible. Due to COVID, even with their lower valuations, foreign equity returns are uncertain.

This year, investors’ returns could still benefit from a well-diversified, equity-weighted portfolio. Here, I propose an asset allocation that is simple to implement and likely to provide reasonable performance under expected market conditions. The compound annualized return of these annual portfolios has been around 8% since 2001; last year’s return was 13.5%.

Asset allocation is based on two factors:

• My view of asset class performance for 2022.

• Recent capitalization of asset classes around the world.

For example:

• Recently, global market capitalization was approximately 60% non-US and 40% US

• The US stock market is approximately 70% large cap, 20% mid cap and 10% small cap.

• Global bond market cap was recently around 62% non-US and 38% US

I weighted my personal views more than the actual capitalization of the asset class, partly because US investors pay their bills in dollars, not euros.

This year’s “moderate investor asset allocation” is 70% equities and 30% shorter-term fixed income securities (including cash). This is due to the growing risk and uncertainty of stock market returns.

In parentheses after each asset, I provide the ticker symbol for a low-cost implementation option.

The asset allocation is:

• 25% invested in a US Total Market (VTI) index fund.

• 10% invested in a US small cap (VB) equity fund.

• 10% invested in a diversified international equity fund (VEU).

• 5% invested in an emerging markets fund (VWO).

• 10% invested in the Real Estate Investment Trust (VNQ) fund.

• 10% invested in large and mid cap common stocks with a history of paying competitive and growing dividends (VIG).

• 25% invested in a diversified portfolio of short-term corporate bonds (VCSH).

• 5% put in cash equivalents.

This asset allocation follows generally accepted investment precepts: the equity portion must provide exposure to global equities; the bond portion should provide income and lower volatility; the cash portion should provide a cushion to protect against forced sales of other assets at “sell-off” prices.

This is not a portfolio for speculative or very conservative investors. The former would be best served by an even more equity-focused portfolio with heavy exposure to NASDAQ stocks, and the latter with a portfolio focused on shorter-dated bonds.

All data and forecasts are provided for informational purposes only and do not constitute advice to buy or sell any security. Past performance does not represent future results. If you have a financial concern that you would like to see addressed in this column or if you have any other comments or questions, Robert Stepleman can be contacted c/o Dow Wealth Management, 8205 Nature’s Way, Lakewood Ranch, FL 34202 or at [email protected] tampabay. He offers advisory services through Bolton Global Asset Management, an SEC-registered investment adviser and is associated with Dow Wealth Management, LLC.


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