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Q&A With Burton Malkiel: Why Tradition Diversification Is' Downright Dangerous'
has one goal to increase a return by replacing traditional bonds with REITs and dividend stocks. That is probably makes sense in a rising market. However I do not see how this portfolio can withstand market corrections. Dividend stocks and REITS are as risky as any equity. One of the main goals of diversification is to protect a portfolio from big loses and I do not see how the suggested allocation can achieve that.
However I feel the same: traditional 60/40 allocation may not be the best choice in the current market with rising interest rate. But I do not know the alternative.
Reply to @DavidV: I don't see where he suggests replacing traditional bonds with REIT's, that percentage allocation remains static between recent and current editions of his "Random Walk" book. Instead he is recommending that one ditch the traditional bond allocation in favor of dividend paying stocks plus emerging market bonds plus tax exempt bonds. Such a move would move one's risk needle over to the right but I'm guessing it all depends on the options you choose in those categories.
FWIW, my risk needle is pegged HARD to the right as I hold few, if any, bonds or bond funds in the traditional sense. Right or wrong, for better or for worse, I view my social security as my bond fund.
Reply to @Mark: You are right - I did not compare different editions of "Random Walk". Instead I compared his allocation with traditional 60/40 portfolio. REITs and dividend stocks may increase equity part in his allocation to about 80%. I am trying to find a rational behind such allocation.
Comments
•Cash: 5 percent
•Dividend growth stocks, emerging market bonds and tax-exempt bonds: 27.5 percent
•REITs: 12.5 percent
•Stocks: 55 percent
has one goal to increase a return by replacing traditional bonds with REITs and dividend stocks. That is probably makes sense in a rising market. However I do not see how this portfolio can withstand market corrections. Dividend stocks and REITS are as risky as any equity.
One of the main goals of diversification is to protect a portfolio from big loses and I do not see how the suggested allocation can achieve that.
However I feel the same: traditional 60/40 allocation may not be the best choice in the current market with rising interest rate. But I do not know the alternative.
FWIW, my risk needle is pegged HARD to the right as I hold few, if any, bonds or bond funds in the traditional sense. Right or wrong, for better or for worse, I view my social security as my bond fund.
REITs and dividend stocks may increase equity part in his allocation to about 80%.
I am trying to find a rational behind such allocation.