After the recent spectacular stock market collapse, the classic allocation to a portfolio is under fire and managers are beginning to change the way they invest. What weightings of exchange traded funds (ETFs) should you include in your portfolio?
Professionals are questioning the time-honored tradition of allocating more to stocks than bonds. The old belief was that stocks existed so that a portfolio may grow, while bonds offered some protection, comments Sam Mamudi for The Wall Street Journal.
The pros are now suggesting that portfolios should include higher weightings of bonds and alternative asset classes such as commodities or emerging markets. The classic 60-40 portfolio split between stocks and bonds ignores other asset classes that could deliver the returns with varying risk levels.
Rob Arnott, chairman of money manager Research Affiliates, states that stock investors should begin to reduce stock allocations and diversify. Steven Romick, manager of FPA Crescent Fund, believes “it’s just ridiculous” to adhere to a strict percentage allocation.
In the last two years, bonds have been faring much better than the stock markets. But stocks have had higher highs, along with much lower lows, in the long run. Ned Notzon, chairman of the asset-allocation committee at T. Rowe Price Group Inc., argues for large stock allocation in a long-term portfolio and believes that it is hazardous to sidestep periods of poor stock performance and then try to jump in during the good times.