I closed the final chapter of LOSE YOUR BROKER, NOT YOUR MONEY by recommending a balanced approach towards investment by splitting your assets equally among three or four asset classes, citing the below allocation example:
Stocks 25%
Bonds 25%
Gold 25%
Cash 25%
As mentioned in the book, when making investment decisions you should take your cues from the Market not the stock market. And for all the change that was promised after the “financial crisis,” central governance continues to make the same irresponsible mistakes.
Monetary policy has been way too loose for far too long and the dollar continues to lose value because of it. They say inflation is not a problem – but have you seen the price of food and gas? Commodity prices also continue to rise with volatility, and gold seems to reach a new high everyday. Unemployment remains stubbornly high and is once again up over 9% (and that doesn’t count the people who have dropped off the list due to expired benefits.) Add to this reckless government spending (this year a $1.7 trillion deficit is projected) and what you have is America following Greece off the proverbial cliff.
When the condition of the Market is increasingly negative you should approach stocks cautiously. As a consequence, conservative investors should consider adjusting their asset allocations to the below spread.
Stocks 15%
Bonds 25%
Gold 25% (or 35%)
Cash 35% (or 25%)
Reason: Cash is king. You can’t buy low without it. Investors looking for growth more aggressively can add to their gold position, as world currencies remain under persistent pressure. Whatever your investment posture is the formula for success never changes: Buy Low and Sell High.
Successful investors do that by not buying into the stock market hype and taking their cues from what’s actually happening in the marketplace. There’s simply no reason to buy into the fluff.