Global Asset Allocation: A Survey of the World’s Top Asset Allocation Strategies

other than a human lifetime. For a tortoise, deep sea tubeworm, or sequoia tree perhaps?

The 60/40 allocation only spends about 22% of the time at new highs, and the other 78% in some degree of drawdown. Drawdowns are physically painful, and the behavioral research demonstrates that people hate losing money much more than the joy of similar gains. To be a good (read: patient) investor you need to be able to sit through the dry spells.

Currently, your ten-year nominal return for buying U.S. government bonds will be around 2.25% if held to maturity.

The Sharpe ratio is a measure of risk adjusted returns, and is calculated as: (returns – risk free rate)/volatility.

When talking about stocks for the long run, then, it must mean something

Quick, what is the world’s largest financial asset class? Don’t know? Answer: Foreign ex-U.S. bonds!

Once CAPE ratios rise above 30, forecasted future median real returns are negative for the following ten years – it doesn’t make sense to overpay for stocks!

The most venerable asset allocation model is the traditional 60/40 portfolio. The portfolio simply invests 60% in stocks (S&P 500) and 40% in 10-year U.S. government bonds.

This is one of the problems with investing in just one security, country, or asset class.