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My current brokerage firm suggest that investors keep no more than five percent of their portfolio holdings in cash. Now, I just get a chuckle out of this because it suggest to me that they make more off of a more fully invested portfolio than they do one sitting on a lot of cash (say, 20% to 25%, or perhaps more). For me, holding about twenty to twenty five percent in cash has proved itself more than once during my lifetime during changelling market periods. My investment way has provided me ample cash to enhance my life style plus some extra cash that can be put to work during down market periods. Their way, there is a good chance you'll be selling assets in a down market to generate cash. Remember, their investment policy committee (IPC) works for their firm and what might be in their best interest; but, perhaps not so much yours. Becasue of my larger than their recommended cash holdings, I was asked to sign an acknowledge form that I was investing outside of IPC guidelines. Never signed it ... and, I still today don't intend to. I told them that if my holding of this amount of cash within my portfolio bothered them this much I would simply off load some of it to another holding place. This seemed to put a squelched to their issue with me. If it is their way only ... or the highway ... be prepared to move on. And, they know I will.
That article starts out as a wonderful (too short) interview with Bob Rodriguez... all of which sets the reader up for a sucker-punch "plug piece" for index funds...
"All of this means that most investors should, in fact, own index funds"
Too bad the article writer had to stick in his index fundamentalism.
=== Skeet, I endorse your comments. Anecdote: I distinctly recall at the turn of the century, investment advisors who administered my, and my spouse's employers' 401k plans, offered regular hosted lunches to 'educate' we simple employees on the plans. Invariably, the subject of asset allocation would arise. Just as invariably, they would recommend extraordinarily high (for my comfort level) equity allocations. And they kept doing so -- all the while the dot-com stocks ballooned, and when it burst.
Fast-forward.. My current employer 401k administrator (Voya) continues to recommend very high equity allocations. (Even though, their website knows I am a short 3 years away from an early retirement.)
These high-equity recommendations are the industry standard. And what amazes me, is that the equity allocation recommendations seem to deliberately ignore how cheap/expensive equities are. Valuations are not part of their allocation modeling. Bizarre! -- What other industry can you think of, where the price you pay is not factored into the purchasing decision?
The author took the time to speak to Mr Rodriguez, but, I wonder why. If the closing tagline was to push Index funds, why bother to interview a Money Manager that would NEVER use an Index. To me, the most important nugget in this article was Mr Rodriguez mentioning, reversion to mean is coming, and historically, he appears to be extremely bearish. To me, Mr Rodriguez is saying the last thing you would want to do is blindly invest in an Index fund. If anything, he seemed to be saying, 'get out now'. The more these talking heads push Index funds, the more I'm convinced that I shouldn't use them.
From Ted's post "Why does active fund management disappoint so often? One big reason is because most active managers refuse to hold cash when stocks get expensive."
Question: How much cash does an index fund hold?
That alone led me to blow off the article. You can own an active fund and hold your cash elsewhere. Does this nonsense ever end.
These high-equity recommendations are the industry standard. And what amazes me, is that the equity allocation recommendations seem to deliberately ignore how cheap/expensive equities are. Valuations are not part of their allocation modeling. Bizarre! -- What other industry can you think of, where the price you pay is not factored into the purchasing decision?
If you don't like the recommendations then don't take them... Simple is that.
Comments
That article starts out as a wonderful (too short) interview with Bob Rodriguez... all of which sets the reader up for a sucker-punch "plug piece" for index funds...
"All of this means that most investors should, in fact, own index funds"
Too bad the article writer had to stick in his index fundamentalism.
===
Skeet, I endorse your comments.
Anecdote: I distinctly recall at the turn of the century, investment advisors who administered my, and my spouse's employers' 401k plans, offered regular hosted lunches to 'educate' we simple employees on the plans. Invariably, the subject of asset allocation would arise. Just as invariably, they would recommend extraordinarily high (for my comfort level) equity allocations. And they kept doing so -- all the while the dot-com stocks ballooned, and when it burst.
Fast-forward.. My current employer 401k administrator (Voya) continues to recommend very high equity allocations. (Even though, their website knows I am a short 3 years away from an early retirement.)
These high-equity recommendations are the industry standard. And what amazes me, is that the equity allocation recommendations seem to deliberately ignore how cheap/expensive equities are. Valuations are not part of their allocation modeling. Bizarre! -- What other industry can you think of, where the price you pay is not factored into the purchasing decision?
Question: How much cash does an index fund hold?
That alone led me to blow off the article. You can own an active fund and hold your cash elsewhere. Does this nonsense ever end.