Asset allocation for 2009
I am pondering putting all new money into a diversified fixed income portfolio with the sporadic equity investment and maybe a managed futures/reit chunk. If credit leads us out of this mess (how many times has that been thrown around), I'd rather be further up the creditor food chain and get a strong interest payment and get some capital appreciation.
Anyone doing anything different in light of a once in a generation credit bubble popping?
After a year like this I think it's time to do things differently.
I'm putting new money, as well as trying to convert existing accounts to a fee based platform and then purchasing corporate and muni bonds as a base portfolio.
Yields look good and I know when to expect my money back. No premium bonds because they look like shit on my statements. We'll have losses on the statements for years or an accountant somewhere is going to have a heart attack when he/she sees the tax loss.
Not to get off track but if every one of your non-IRA accounts does not have at least a $3,000 loss to offset against ordinary income you're doing your clients a dis-service.
For the equity portion of the portfolio I'm considering basic index ETF's that I can trade or place stops on.
If I see (or hear about) Larry the Loser one more time who bought stock at the highs every year but still made money over the long haul I'm going to puke. Forget buy and hold. Limit your losses and get cash flow.
When did the goal become to give tax losses? I would think that if you cannot come up with a loss, that is a good thing.
It is a good thing not to have tax losses.
My point is that if you have them you have to use them. It's like cash on the side walk. If it's there you have to grab it or you lose it.
And who doesn't have tax losses after this year?
I guess I should have said that unrealized losses should be used to generate tax losses.
After re-reading your post, I realized that you were talking about unrealized losses.
I have also been re-tooling a lot of accounts and grabbing the investment grade corp's yielding 7.5% to 9%. These things look sweet right now and will lead us out of the recession. It will be awful tempting to sell out of these when they appreciate 10-12% on paper when the end of the recession arrives, but what a good problem to have. To take the profit or keep the great yield ??? I have already bought a bunch of GE corps at 80-82 and they are now near 91. Even if their rating gets cut to AA, who cares?
25% Coffee can buried in back yard
25% Guns & Ammo
25% non-perishable foodstuffs
I strongly suggest going with mason jars over coffee cans... no rusting and you can buy them by the case
"Anyone doing anything different in light of a once in a generation credit bubble popping?"
I'm not doing anything differently. On December 31, 2007, I had no idea what 2008 would bring. On December 31, 2008, I will have no idea what 2009 will bring. How does what happened yesterday impact the future? Some of you may know. More accurately, some of you think that you know. As for myself, I'm comfortable with my lack of knowledge of what the future will bring.
Gekko and Munster, based upon this thread, it sounds as if you build portfolios and then sell the portfolio to the client. What about designing the portfolio based upon the individual goals and risk tolerance of the client?
I see some serious market timing on your part. A year ago, you weren't going so conservative. Now you are. I'd be willing to bet that if you start going with a conservative strategy and the market did really well for a year or two, you wouldn't keep recommending putting all new money into fixed income.
Are you the guy that heavily solicited net net in 98 and is still holding it thinking it will bounce right back? If you are not doing anything differently, then the only thing you must do is EIA's.
I have no idea what the markets will do in 2009.
My feelings are telling me that I should focus on cash flow and try not to lose to much principle. Bond yields look good to me and with stocks 40% off the highs I want to own some equities as well. I'm trying to figure out how provide positive returns without getting crushed.
I think my clients are expecting me to develop individual allocations that will provide growth and some principle protection. I don't want to market time but I'm sick of sitting around watching money disappear.
As conditions change I'll try to adjust my allocations accordingly. It may be the wrong approach but we'll see how it goes.
SoBroker - I am 8 yeard LOS so I guess someone else must have a negative LOS to arrive at your guestimate.
My point was that I think you can get equity returns from fixed income, hopefully sooner than later. If a retiree hands me a rollover, I'll be buying Loomis Sayles Investment Grade Bond fund over XYZ stock fund.
I'm not making any wholesale changes. Since November I've been working towards upgrading the overall quality of all of my allocations. In my stock portfolios I've upgraded the overall quality. In some cases I've held (or added to positions) in some "fallen angels" that are likely to have big rebounds. In other cases I've sold off losers and bought higher quality names for tax swaps.
In my muni bonds, I did a lot of tax swaps to upgrade credit quality and coupons. I also use a lot of muni CEFs that are dramatically oversold. I've added to those positions as well. With CY of about 8% on average, I stand to do very well as money comes back in to munis.
On the taxable bond side, I've always had a lot of agency CMOs. They have done fantastic and are trading in the 91-100 range. I've added to positions in bank debt and CEFs. There are high yield/sr. loan CEFs that are paying 20%+ and they're 20% below NAV. They are pricing in 100% defaults and historic recovery. That's garbage. Re-invest the dividends and watch the accounts grow as yields normalize.
In case you couldn't tell, I manage my own portfolios.
I like everything except your cef idea. Those are neurotic little children that act too irrational for me. I'd rather buy the open ended versions that at least trade at what they are supposedly "worth". By worth I mean whatever the pricing system says on a given day.
As soon as your post hit, it skewed the LOS to under 2 Mr. Portfolio Manager. Why don't you leave us rookies with zero production and experience alone? Oh, by the way, there will be quite a few divvy cuts coming on the closed end muni's forcing the CY back down.
The CEFs are only a small portion of the FI allocation. At their current (or even reduced) yields and discounts to NAV, they really add alpha to your bond portfolio. Also, if you're reinvesting the divs then you just soak up those cheap shares and have that much more when they recover.
On the other hand, there are some good values to be had in Equity CEF's right now, particularly those with no leverage, or leverage thats already been taken off