Thirty Second Course on Asset Allocation

If I only had thirty seconds to teach a young person about asset allocation, I probably wouldn’t bother with anything written. I’d also dispense with any sort of formula, equation or model.

Instead, I’d come armed with just one chart and force my erstwhile pupil to spend the entire half-minute staring at it.

That chart is below, a gem from Professor Jeremy Siegel (via Vox):

stocks bonds

In the above table, originally pulled from Siegel’s epic Stocks for the Long Run (now in its fifth edition), we see that stocks have beaten Treasury bonds and T-Bills (a cash equivalent) in almost 100 percent of all thirty-year periods. Phrased another way, only during less than one percent of all thirty-year periods for more than two centuries did it make sense to stay out of the stock market with a retirement portfolio. 

Now of course, there are caveats – the first is, nobody lives for two hundred years. This is true, which is why the gains of the stock market from the entire period are not important ($1 turned into $704,000, in case you were wondering).

The second caveat is that, prior to the 1970’s and the advent of the index fund at Wells Fargo, nobody could have done anything quite so simple as buy the stock market passively. As such, these historical returns would have been unattainable, even if the numbers themselves are reality as represented by the indexes.

But to those caveats, the reasonable person says “So what?  Just because I’m not going to live for centuries or because my grandparents could not have owned an index fund, what does that have to do with my own future and the next thirty years?”

Thirty seconds doesn’t offer us a lot of time for nuance and there are certainly other issues that should be brought to the fore in a discussion about portfolio management and risk. But if that were all I had, this chart would be all I’d need to make the most important point a younger investor needs to be armed with, the earlier the better.

Source:

Only 24% of the US knows where to put their money (Vox)

Check out the book or gift it to the new investor in your family or office:

Stocks for the Long Run – Fifth Edition (Amazon)

***

This post originally appeared here on August 17th, 2014

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. bitcoin loophole commented on Sep 27

    … [Trackback]

    […] Read More on to that Topic: thereformedbroker.com/2014/11/06/thirty-second-course-on-asset-allocation-2/ […]

  2. orangeville real estate agents commented on Oct 16

    … [Trackback]

    […] There you will find 12484 more Info to that Topic: thereformedbroker.com/2014/11/06/thirty-second-course-on-asset-allocation-2/ […]

  3. Click here commented on Oct 26

    … [Trackback]

    […] Read More to that Topic: thereformedbroker.com/2014/11/06/thirty-second-course-on-asset-allocation-2/ […]

  4. DevOps commented on Nov 10

    … [Trackback]

    […] Find More on that Topic: thereformedbroker.com/2014/11/06/thirty-second-course-on-asset-allocation-2/ […]

  5. 호두코믹스 commented on Nov 16

    … [Trackback]

    […] Find More on that Topic: thereformedbroker.com/2014/11/06/thirty-second-course-on-asset-allocation-2/ […]

  6. Digital Transformation Consultants commented on Nov 27

    … [Trackback]

    […] Here you can find 89270 more Info to that Topic: thereformedbroker.com/2014/11/06/thirty-second-course-on-asset-allocation-2/ […]

  7. td login commented on Dec 06

    … [Trackback]

    […] There you will find 32761 additional Info on that Topic: thereformedbroker.com/2014/11/06/thirty-second-course-on-asset-allocation-2/ […]

  8. Functional testing solutions commented on Dec 09

    … [Trackback]

    […] Find More on to that Topic: thereformedbroker.com/2014/11/06/thirty-second-course-on-asset-allocation-2/ […]

  9. Regression testing commented on Dec 20

    … [Trackback]

    […] Information to that Topic: thereformedbroker.com/2014/11/06/thirty-second-course-on-asset-allocation-2/ […]

  10. fake rolex commented on Dec 21

    … [Trackback]

    […] Find More Information here on that Topic: thereformedbroker.com/2014/11/06/thirty-second-course-on-asset-allocation-2/ […]

  11. replica rolex commented on Dec 29

    … [Trackback]

    […] There you can find 46417 additional Information on that Topic: thereformedbroker.com/2014/11/06/thirty-second-course-on-asset-allocation-2/ […]

  12. Buy fresh seafood online commented on Dec 29

    … [Trackback]

    […] There you will find 38916 additional Information on that Topic: thereformedbroker.com/2014/11/06/thirty-second-course-on-asset-allocation-2/ […]