A 500 Year Investment Asset Allocation Plan That Still Works Today!
The following advice is over 500 years old!
It comes from one of the original value investors.
The advice is as relevant today, as it was over 500 years ago.
Listen to this…
“Divide your fortune into four equal parts: stocks, real estate, bonds and gold coins.
Be prepared to lose on one of them most of the time.
During inflation, you will lose on bonds and win on gold and real estate: during deflation, you lose on real estate and win on bonds, while your stocks will see you through both periods, though in a mixed fashion.
Whenever performance differences cause a major imbalance, rebalance your fortunes back to the four equal parts.” — Jacob Fugger the Rich, 1459–1525
Now listen to the words of the words of the wealthiest man on the planet:
“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight, or inside information.
What’s needed is a sound intellectual framework for decisions and the ability to keep emotions from corroding that framework.” — Warren Buffett
Are you getting this?
Remember, the asset class that you have invested in doesn’t lose you money — your reaction to it does!
The appropriate asset allocation accounts for 92% of a portfolios return (or retention of your money in a down market)…
How’s your present asset allocation model working?
Has it totally followed recent market declines?
Or has is acted as a “shock absorber” and helped you preserve your capital so that more of it can participate in the next “up turn” — when it comes…
Depending on your answers, maybe it’s time to do a review and overhaul!
Speaking of asset classes, don’t forget that there were people that invested in Canadian real estate ( as an asset class) in the early ‘80’s that lost money…
Why?
Because they became over extended with the high interest rates “of the day” and were forced to “toss in the towel” and walk away from their home/investment when they couldn’t afford their mortgage payments any longer.
I know, because some of these individuals are my clients today…
It’s important to remember that — no matter the asset class:
Bear markets (in that asset class) always end! Bull markets (in that asset class) are stronger and last longer!
In the long run, increases (in that asset class) far outweigh the declines.
Risk should not be avoided because it offers you “peace of mind”…
Appropriate “risk” must be assumed because of the opportunity for higher returns — over time!
In particular, equities offer one the highest “real returns” — “over time”.
All investors must realize that they cannot to expect to meet their reasonable goals without accepting some level of “market risk”.
That’s why we buy homes for example!
That’s also why we have equities in our investment portfolios!
But we must also not only understand that the level of “risk” (no matter the asset class) diminishes the longer one holds onto an investment — irrespective of that investment…
Just because home prices may have dropped (temporarily) — are we tempted to sell?
Of course not!
We still keep paying the mortgage!
So then, what about when the values of our investment portfolios are off?
Well, unfortunately, the answer to that varies…
The ones who “stay the course” invariably win!
Those that do not — well, they lose out!
You must remember that stock markets are “forward looking indicators ” from 3 to 6 to 12 months out.
On the other hand, real estate is a “lagging indicator” and often “trails” the economy as an indicator by up to 2 years!
Right there you have 2 differing asset classes that work and make us all money but are “priced” in 2 differing ways over the same time periods.
Remember, the pendulum always swings!
If things seem too good to be true in one asset class — they probably are.
On the other hand, if markets seem depressed, and the news media is predicting “doom and gloom”, a turn for the better is probably not that far away…
In fact, I know this to be true with over 28 years of experience in the financial services industry.
I believe that the “free market system” that we enjoy here in Canada (and by extension, North America at large) is more elastic than most people believe.
Over the years “the system” has shown a remarkable way of correcting excesses — both on the downside and as well as on the upside.
The pendulum always swings, but as long as innovation continues, and productivity increases, markets will rise over the long term — but not without its halts and/or “regressions” along the way.
How does an investor make sense of this?
With the resources and amount of information on the Internet, investors today can view markets on a minute to minute; an hourly basis; daily; weekly; monthly and yearly basis.
I refer to this as “noise”!
Why?
Because of the infinite amount of information that goes into the minute by minute movements of markets.
The Internet, and twenty four hour a day business channels add to the proliferation of information of news that affect stock markets.
Factors like weather, political comments, economic comments, corporate reporting, consumer buying reports, inflation updates, wars, assignations, terrorist attacks, and human emotions all go into the minute by minute changes in the market.
Each new piece of information affects millions of individual decisions that cause markets to move.
However, this “noise” has minimal impact on — the long term!
Remember, as long as innovation continues, and productivity increases, markets will rise over the long term — but not without its halts and/or “regressions” along the way.
So, remember:
“No matter what asset class that you are in — you will do well — over time!”
However, to reduce the volatility in your portfolio — and to give you “peace of mind” along the way — make sure to keep it all “in balance”!
Rather than trying to predict where the markets will go — get a group of assets working for you that provides enough protection if things go badly, and enough opportunity when things are going well.
Finding this optimum allocation, of course, always remains a challenge.
Here’s to your success!
Cheers!
Mark Huber
Mark Huber specializes in helping entrepreneurs & businesses owners make more money more easily while enjoying a business and lifestyle that reflects their vision & priorities all through the power of webinars and streaming digital media.
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About the Author
Mark Huber lives in beautiful Vancouver, Canada and believes that:
“The best way to predict your future (and dream life) is to create it!”
Marks mission is to teach, support and empower people on how to effectively transform themselves (& their business) into the lifestyle of their dreams!
Using Marks methods, coaches, experts, thought-leaders, and service professionals attract the perfect clients, at the perfect price, anytime they want.
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