Investing is complicated, but it begins rather simply. How it ends is the question.
There are infinite possibilities for reassembling the major asset classes. The challenge is finding the one that satisfies your particular set of expectations, risk tolerance and financial situation. The basic choices boil down to choosing some combination of stocks, bonds, REITs and commodities. We can further subdivide those broad categories and we can also employ any number of asset allocation strategies to manage the mix through time. That includes leaving out one or more asset classes, holding some cash, selecting individual securities and venturing into the shadowy realm of alternative betas.
How should we begin? We can start by considering a government bond. The benchmark 10-year Treasury Note offered a 3.72% yield as of yesterday. That’s a good place to launch our analysis because we have a high degree of confidence—a virtual certainty, in fact—that we’ll receive a 3.72% total return from a 10-year Note if we buy and hold till maturity. Deciding if the rate du jour will suffice depends on various factors, starting with a strong estimate of one’s future liabilities.