Analyst Blogs
The 200-Word Guide To Asset Allocation
March 24, 2010
Wall Street likes to make investing look complicated. It doesn’t have to be.
I was struck by this the other day when I was reading the latest research report from Tim Bond at Barclays Capital. Tim is by far my favorite researcher on Wall Street: While most analysts focus on the micro-picture and individual securities, Tim’s purview is macro-focused asset allocation analysis. I read everything that comes out of his shop.
In his most recent research piece—Asset Allocation: The next phase—Tim included a table that blew my mind:
| Real Annual Returns, US Assets Since 1925 (Commodities Since 1969), By Business Cycle Quadrant |
||||
| Equities | Bonds | T-Bills | Commodities | |
| Low GDP, Low CPI | 11.4% | 10.1% | 2.8% | -4.4% |
| High GDP, Low CPI | 10.6% | 5.2% | 1.3% | 0.9% |
| High GDP, High CPI | 8.2% | -1.2% | -0.9% | 25.4% |
| Low GDP, High CPI | -1.9% | -5.0% | -1.7% | 3.8% |
| Source: Barclays Capital Gilt Study | ||||
Cutting through all the jargon, here is your guide to rolling asset allocations, using just two, widely available economic statistics. Essentially, you can boil Tim’s table down to this rule: Buy stocks and bonds when there's low inflation, and commodities when there's high inflation.
Does it solve every problem in investing?
No, but it’s a pretty good place to start.
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