You read in my piece “What Do YOU think?” that former President of Fidelity Investments, Robert C. Pozen, believes that the optimal portfolio balance is a mixture of 90-10 stocks to bonds. You also read that Your Survival Guy doesn’t agree. This isn’t the first time The Wall Street Journal has published an obituary for the balanced portfolio. While stumping for a 90-10 portfolio, Pozen does admit that many people should hold bonds, writing:
Plenty of people should hold bonds. If you are retired and subsisting on your investment income, or if you would have to sell a significant chunk of your investments to cover living expenses in a bad year, you should have more in high-quality bonds. But that probably isn’t true for two large groups: The six million to seven million Americans with $1 million or more in investable assets and other households with more than $100,000 in investable assets whose noninvestment income covers their cost of living. (Investable assets include retirement accounts but not homes.)
Whether you invest at 60-40, or 90-10, what Robert Pozen and Your Survival Guy agree on is that there are benefits of diversification. Harry Markowitz called it the “only free lunch in investing.” Markowitz illustrated his theories on diversification with the Efficient Frontier. It’s an easy visual representation, like a “food pyramid” for diversification of investments.
Action Line: When you want to talk about a diversified portfolio, email me at ejsmith@yoursurvivalguy.com. And click here to subscribe to my free monthly Survive & Thrive letter.
