Bloomberg columnist Jane Bryant Quinn reports that most financial planners still view stocks as the cornerstone of a retirement plan. An informal survey of planners showed overwhelming support for an equity allocation of 50-60%, although many have a new found respect for cash.
It still sounds as if most financial advisers are pretty worthless, just dishing up the same bad advice you could get from the New York Times:
Most of the planners are advising their clients to rebalance their portfolios, which effectively means putting money into stocks at current prices. They’re buying slowly, dollar-averaging into the market month by month. For taxable accounts, they’re also harvesting tax losses, to use against the capital gains that some mutual funds will be reporting, based on gains taken earlier this year. They also love municipal bonds.
Any adviser who had clients in more than a token amount of stocks by 2007 should be fired for incompetence. Same goes for those who still advise 50% or who like municipal bonds, which are an accident waiting to happen.
A good adviser doesn’t just deploy static formulas for asset allocation, but has the historical (100+ year) perspective required to identify periods of relative over- and under-valuation in various asset classes. Stocks were a time-bomb after about 1995. Commodities should have been avoided by early 2007. Real estate was on a crash course post-2004. Munis and corporates were also all risk an no reward after 2004.
This is pretty simple stuff, really. Just look at the relationships of various assets to one-another and to consumer prices, and don’t forget that metrics like PEs and yields can reflect overvaluations for so long that up begins to look like down.
As asset classes get way out of whack with historical averages, they should be sold or bought accordingly. People often forget that cash is an asset class, perhaps the most important one, and should be bought in spades when it is cheap and held until it is dear. It is still cheap.