When it comes to portfolio management, asset allocation matters. For many the starting point of this discussion of dividing assets between stocks and bonds. This leads to the often talked about 60/40 portfolio: 60% stocks and 40% bonds. From my perspective that is an incomplete opportunity set and decisions based on such an opportunity set are going to leave investors feeling underwhelmed. Stocks (VTI) and bonds (AGG) are important components, but commodities (DBC) and cash (MINT) need to be on the table as well. Commodities were the top performing asset class last year. Amid equity market weakness this week, commodities are moving to new highs (assets in up-trends tend to do that). Cash has been mocked recently as a guaranteed way to lose ground relative to inflation. That might be a small price to pay for the flexibility it can provide in the face of volatility elsewhere. Three consecutive years of 20%+ returns for equities can make investors financially and emotionally over-invested in stocks. Maybe it’s time to get back to the basics. Stocks. Bonds. Commodities. Cash.
