Asset Allocation Revisited

A year or so ago, I wrote that I had adopted an asset allocation approach to investing as advised by Malkiel and other experts. The basic idea is that if the assets are uncorrelated, then some would go up at the same time that others go down and everything would more or less even out. Examples of uncorrelated assets are Large Cap US stocks, emerging market stocks, gold, real estate or REITs, energy related stocks, commodities, etc. I said that with this approach I could go on a holiday to Antarctica and not worry.

So, I invested in all the asset classes above and stopped worrying. Recently, I went on a month long vacation in Morocco. I didn't worry. When I returned, my investment portfolio had been devastated. Everything went down: gold, US stocks, foreign stocks, energy related stocks, etc., etc... Nothing was uncorrelated.

Thank goodness that the experience of over 40 years of investing had lead me to sell half of my portfolio last December and that before that I took out a substantial sum to reduce the loan on our investment real estate property.

So, I don't know what to think about asset allocation any more. One thing is for sure. It is not a silver bullet.