Date: February 2, 2012

Top 9 Tips for the Successful Investor in 2012: Tip #2

2 – Asset allocating among stocks and bonds hasn’t worked well this century and it’s unlikely to work in the next decade.

Modern Portfolio Theory (MPT), which espouses fixed portfolio allocations of stocks and bonds, may not be dead, but it’s critically wounded and has hurt hundreds of thousands of pre-retirees and retirees just in the past 12 years. Folks who retired in 1999 and 2000 have been decimated TWICE in 10 years.  Not only were they drawing income off of their portfolios to live on, but those assets were declining sharply in price from 2000 – 2002 and again in 2008 – 2009.

The first bear market (as seen below) saw the S&P 500 sink by roughly 50%, needing 100% gain just to get back to breakeven.

Stock market chart
Dotcom Bubble Burst 2000 - 2002

The recent debacle (below) plunged the popular index even more than 50%.  Now imagine you are withdrawing the same amount of money each year, but your portfolio is at lower and lower values.  Can you say… RUNNING OUT OF MONEY?

stock market chart 2008 - 2009
Financial Crisis Collapse 2008 - 2009

The successful investor in the New Economy doesn’t only subscribe to MPT (fixed allocations of stocks and bonds).  They not only own stocks and bonds, but other important assets as well, like currencies, commodities and REITS.  The REALLY successful New Economy investor also employs different strategies that don’t all go up or down together.  Those who protect against inflation and deflation with asset and strategy diversification have the potential to be the survivors and winners!


Paul Schatz, President, Heritage Capital