When one of the big investment firms shifts its asset allocation model, financial media runs the headlines and retail investors pay attention. Morgan Stanley just ramped up exposure to equities? I guess I should juice my portfolio. Goldman is loading up on cash? Maybe Iâd better tap the brakes.
But, according to fund manager and popular blogger Mebane Faber, youâre probably better off ignoring it all together. Not because trying to mimic the pros, in general, is a foolâs game, but because asset allocation strategies, in a big picture kind of way, just donât matter.
Faber took a look at the asset allocations of 40 of the countryâs leading wealth management groups, and the various strategies they use. Hereâs the list:
He then broke down the data into three categories. 1) The allocation with the most amount in stocks â Deutsche Bank at 74%. 2) The average of all 40 allocations. 3) The allocation with the least amount in stocks â Atlantic Trust at 44%.
He determined that, since 1973, the first one, which is the most aggressive, returned 9.72% annually. The least aggressive came in at 9.19%, and the average was in the middle at 9.6%. Faber used this chart to illustrate his point.
âUnless you have hawk-like vision, youâll likely have a hard time distinguishing between the curves, and this is for the most different,â he said. âThe other 40+ firms live somewhere in the middle!!â
In other words, thereâs no reason to stress over perfectly tweaking your allocation, because, over the long haul, the difference is negligible.
To further hammer home his point, Faber said to go ahead and add in a 1% management fee for the most aggressive portfolio.
âSimply by paying this mild fee (that is lower than the average mutual fund, by the way) you have turned the highest returning allocation into the lowest returning allocation â rendering the entire asset allocation decision totally irrelevant,â he said.
His message was simple: Donât get bogged down by the news flow and all the Wall Street maneuvering. âIf youâre a retail investor, go do anything that makes you happy,â Faber wrote. âStop reading my blog and go live your life.â