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

It is wet, but not cold, in this area of France this morning. Rain splashes on the copper flashing. The windowpanes fog over. We have made some tea and settled in to our library for a long day’s study.

One of the pleasures of life is having a good place to work. The library is an old octagonal building, with a cement floor and brick walls, that had been used for laundry. We replaced the windows, put in a gas fireplace, and lined the walls with bookshelves.

You never know how these projects are going to turn out. We have been building and remodelling all our lives; this is one of the successes.

It is warm, cosy, richly decorated with books and old guitars…and a delight to be in. We look forward to opening the door in the morning. We regret having to close it at night…


Time to be in stocks?

Yesterday, 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.’

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.


Bill Bonner,

For Markets and Money, Australia

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Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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