Is This 80/20 Portfolio the Best Plan for Your Money?

Posted by Bill Bonner - Diary of a Rogue Economist

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Time to Be in Stocks?

DRE-Bill-BonnerYesterday, we learned from Wall Street Journal reporter Brett Arends that this is the best time to invest in the stock market: 

“The best estimates argue that over the long term, stocks have beaten bonds, cash and deposits by an average of about 4 to 5 percentage points a year. Compounded over time, that has amounted to an enormous difference. After 30 years, someone who invested in stocks has often ended up with three times as much money as someone who kept it all in cash and bonds. 

Meanwhile, those gains have typically all come during the winter months. Peculiar, but apparently true. The most recent academic study, which has looked at stock markets around the world and went back in some cases more than 100 years, has found that winter has beaten summer pretty consistently in almost every country and almost every period.”


If you want to do well with your investments, you will buy stocks… and buy them now. 

Arends goes further. He tells us how much of our money we should have in stocks. Citing the work of valuation expert Andrew Smithers, he concludes that… 


“…a long-term investor who wants an easy life should keep 80% of their money in stocks and 20% in short-term bonds or cash.”

But wait. Smithers believes stocks are very expensive now (as we do). And everybody knows you can’t make money by buying high and selling low. You have to do it the other way around. So, what do you do? 

“Buy foreign stocks,” says Arends. 

“Putting all this together: If history is any guide, you should log on to your online brokerage account today, or at least this week. And if you are trying to save for a retirement that is more than five years away, you should make sure that your portfolio is at least 60% allocated to global stocks, even if you’re nervous about the market, and more if you aren’t.”

Meanwhile, CNBC reports that this could turn out to be the worst time to buy stock in eight years: 

“Stocks with big buyback programs are struggling this year, and according to one technician, a similar lag has previously preceded two market crashes.” 

Out of the nine S&P 500 companies with the biggest buyback programs, four are down in stock price over the last year. Exxon Mobil, IBM, 21st Century Fox and Merck are all negative for the year, and Oracle and Intel are fighting to hold onto incremental gains.

Out of the nine S&P 500 companies with the biggest buyback programs, four are down in stock price over the last year. Exxon Mobil, IBM, 21st Century Fox and Merck are all negative for the year, and Oracle and Intel are fighting to hold onto incremental gains.

Strange as a $3 Bill

What to make of it? 

Nothing. These technical studies are entertaining. But they are useless from an investment point of view. The first focuses on the last 30 years. It tells us that people who bought and held stocks did very well. 

Well, big whoop! 

Thirty years ago stocks were cheap. They had a lot of room to go up. If they had been expensive when the period started, the gains would have almost certainly been more modest. 

In the second place, this period was extraordinary, unique, and as strange as a $3 bill. It was marked by the biggest rush of money and credit into the world’s asset markets in history – with an increase of $12 trillion in world foreign exchange reserves. 

Where was all this money going to go? 

Meanwhile, a new study by Patrick Artus at Natixis Research shows that almost none of the base money increases as a result of QE over the last seven years led to the kind of increase in money supply that boosts consumer prices and stirs economies. 

QE benefited Wall Street, not Main Street. 

Which is why the rich got so rich. And why real economies did not benefit. And why wages did not rise. And why the whole program was more larceny than monetary policy… 

…and why stock owners made so much money. 

Now, those stock market investors think they are geniuses. Analysts add the numbers and confirm it. Reporters give out the word… 

…and a whole new generation of investors believes it. They want to make money, too. What better way than to do what worked for their parents? Buy stocks! 

Alas, past performance is no guarantee of future results. The fix was in. And just because some lucky stiff made money in a rigged market over the last 30 years doesn’t mean you will now. 





Tech Insight

(Dairy of a Rogue Economist) Editor’s Note: We’ll soon be launching a new investment advisory, Exponential Tech Investor, to help you profit from game-changing innovations. Below, editor Jeff Brown identifies an exciting area of breakthrough technology.]

As you step through the portal, it’s dark and cool. You are in a research facility in the future in search of an alien life form. You can hear the hum of the machinery and cool air on your face. You have entered a virtual world created by a company called The Void. 

The Void has built the first of many virtual reality (VR) game facilities in Lindon, Utah. It is not experimental technology; in fact, you can go there today and experience its “beta” version for an early view of the future of VR. Full commercial deployments will begin early next year and additional facilities will open up. 

Before you say, “but these are just games,” think about this… The video-gaming industry will generate more than $110 billion in revenues this year… and VR is forecast to be a $30 billion business by 2020. 

It is not just about gaming either. Imagine learning in a virtual environment. What if you could see what a forest looks like through the eyes of a wolf? What if you could explore the ocean through the eyes of a dolphin? Or view an organism from the inside out? 

The applications for skills training are also immense. Training using VR is less expensive and allows the learner to avoid making mistakes in the real world. 

Believe it or not, real work will be conducted in a virtual world as well. With advances in network bandwidth, microprocessor power, and graphics processor speeds, people will telecommute to virtual offices, where they will work and interact with colleagues in a wholly digital world. 

Another interesting company that I am following is called High Fidelity. It was founded by Philip Rosedale, the original founder of Second Life. If you haven’t heard of Second Life, it was a fantastic technological and social experiment. It is a virtual world accessible via your computer that functions just as the real world does. Everyone has an “avatar” that represents who they want to be in this second life. 

Second Life launched in 2003. But technology has changed exponentially in the last 12 years. Today, High Fidelity is taking advantage of all of those advancements to create a completely new virtual world. Rosedale and many others believe that much of future education, work, and play will exist in virtual environments. 

P.S. If you want to be among the first to learn about my top picks for breakthrough tech stocks on the verge of huge gains, follow this link