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4. Hypothetically, If you had $250,000 and are looking to invest it with the intentions of leaving it alone and generating income, would you be better off spreading it over several REITs, or buying a second house as a rental?
IMO, neither is best. But that is my investment philosophy. I follow a passive, low-cost indexing strategy. I would diversify that 250K (diversity=lower risk). Concentrating all your money in one area is very risky. In my case I am invested into a combination of low cost indexes covering:
1. US Market
2. Int'l Market
3. Bond Market
4. REIT (about 10% of portfolio)
5. Healthcare
6. Small and mid cap value
My goal is to consistently match the market with low cost funds, not beat it.
The only problem i see with the above is most of that portfolio will all move the same way at the same time. last down turn even corporate bonds fell in unison with stocks.... gold and treasuries were the only asset classes that truely moved opposite and rose. by the way i do like your mix as a bet on prosperity but if things dont pan out the way the whole mix will not have much fighter cover in it. It will give you market returns though good or bad and that long term can grow alot of money
Last edited by mathjak107; 01-26-2011 at 02:27 PM..
The only problem i see with the above is most of that portfolio will all move the same way at the same time. last down turn even corporate bonds fell in unison with stocks.... gold and treasuries were the only asset classes that truely moved opposite and rose. by the way i do like your mix as a bet on prosperity but if things dont pan out the way the whole mix will not have much fighter cover in it. It will give you market returns though good or bad and that long term can grow alot of money
It is a bet on prosperity-somewhere in the world. I have a nearly even split between US and int'l market funds.
Your last sentence especially sums up what I am trying to do: market returns. I don't think I am any smarter than the market. I have a 20-25 year timeframe, so am hoping to put time, diversification and consistency to work in my favor. It's my attempt at the Boglehead strategy, if that tells you anything.
I am eyeing the Vanguard Precious Metals fund for more diversification. That and upping my allocation in bonds.
one word of caution precious metal stock funds are not the same diversification you get as owning funds that buy the metals themselves. the ones that own mining companies are still stocks first and a play on metals second . they are plagued by all the things that take stocks down. they are still subject to corporate profits dropping,strikes,political issues and bad management ..
in fact a mining strike sent asa which is an index of south african gold minning companies falling at the same time gold was rising...
one thing 2008 taught us is that while we all thought different asset classes represented diversification when the crap hit the fan most were really correlated together and moved in lockstep.
in my own portfolio my long term treasuries soared almost 30% , gold rose and that offset the 45% drop in equities actually letting me close up in 2008.
corporate bonds can be an issue too as what ever is bad for stocks is bad for corporate bonds too... for diversification there is a big difference between treasuries and corporates.
At some point I will need to diversify more out of the equities market. Not sure how I want to do that yet. Not too keen on directly owning funds at this point. Am open to your thoughts on that.
I am hopeful that we won't see turmoil like 2008 again for quite some time. In regards to my portfolio, a major part of me says that if the entire market goes thud, there aren't many good ways to avoid it. I try to set-up an allocation I am comfortable with and not worry to much about that.
i actually run 2 portfolios. one never varies and thats my permanent portfolio . its 25% each in gold, long term treasuries ,total market index fund and cash. i rebalance once a year and despite what i think may happen that never veers from what it holds, thats actually averaged over 9% cagr for over 25 years. its just boring as heck as somethings always going up and something is going down.
even as negative as i am right now about holding long term treasuries they are an important part of the balance. sudden world events can have everyone going back into that flight to safety again sending them soaring once again from left field. they belong in that mix above. they dont belong in my other activly managed portfolio.
the other portfolio is more active.. it contains equity funds,short term bond funds , floating rate high yield funds and my un-traded reit. it changes slightly thru the year as the big picture changes..
like nudging a big ship into port the changes are slight and even if they didnt work out as planned you would never get hurt......
That portfolio sounds a bit like what I'm trying to accomplish via passive indexing in several markets. Regular performance, without a lot of active research and in-depth knowledge.
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