MAN BITES ASSET ALLOCATION

Is extremism in the pursuit of asset allocation a vice or a benefit? To be precise, is routinely holding one asset class to the exclusion of all others a wise choice for the long run?
Anecdotal evidence suggests that most strategists prefer a broad array of asset classes for clients. Arguably, history backs up the advisability of diversification as a prudent strategy when measuring portfolio results in risk-adjusted performance terms. The fact that 50 years of finance theory lends a supporting academic hand to the idea doesn’t hurt either.
Nonetheless, seeing how the other half lives is useful, if only to strengthen one’s decisions. Or, perhaps a fresh perspective will raise new questions and lead to new insights. In any case, your editor came across a financial advisor who has some very definite views on the issue of asset allocation. In particular, he abstains from diversification completely, instead choosing investment grade bonds as the one and only asset class for clients.
That’s an extreme strategy, at least by the standards of what passes for normal on these digital pages and conventional wisdom in the financial planning community. Why would an advisor recommend that clients avoid most of the world’s asset classes sans high-grade bonds issued in the U.S.? In the current issue of Wealth Manager, we asked the question, and more, to an advisor who prefers bonds all the time. For his responses, read on…

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