Annual rate of return on 403B

"Prion" wrote

The last sentence above is somewhat oxymoronic. Do you understand and can you state what the purpose of diversification is? If you do understand this, then you will understand that, historically speaking, your current allocation has not been optimal for returns.

For ideas on allocations, try some of the free online asset allocation calculators linked at

. Then ask more questions as needed. Certainly keep lurking here and at other online fora.

Remember, chasing short term returns, as you seem to be proposing, is a proven losing strategy for long term investing.

You spoke of the dotcom bust. Prior to the bust, you do realize that returns were well north of 12-15%, too, right? What lesson should one take from this?

That's one risky puppy.

How would you see a "serious swing in the market"? I can tell you about this one stock I own. It's a great company, makes lots of money, has lots of institutional ownership, and was undervalued to boost. Then one day it dropped 35%. No one saw it coming (except the insiders). The name of the company is Merck. Fortunately I am diversified so the drop had only a small impact on my portfolio. But that's a moral story for you.

That's long term. I doubt that your portfolio is going to return that for the long term.

Again, you can't tell when trends develop. At least you can't move faster than professionals in the field.

Are you sure about this? Have you looked at historical data? If I take his allocation, rebalance every year, then $1 would become $2.44 (my period here is March 1996 - March 2006, that's as far back as the data for FHKCX - his China fund - goes on Yahoo, it was established in Nov.

1, 1995, so I couldn't go much further back anyway even if I had the data).

If I use the most aggressive asset allocation from the first link you suggest at the site above, it gives me a 40% large-cap, 20% small-cap,

20% bond and 20% foreign allocation. Using the S&P 500, Russell 2000, RPSIX, and FWWFX for these, respectively, then in the same time period this allocation would give a result of $2.22 over the same period (rebalancing once per year). This holds when starting in any other month as well. It seems that your tools don't give optimal allocations either.

I'm not suggesting that the OP has a good allocation, but it wasn't a bad allocation either (return-wise).

-Will

I have never seen anyone recommend strictly emerging market and international stocks for one's portfolio. I think it's a fair assumption that this is based on historical returns over several decades, which is the OP's timeframe. (He said he was "relatively young."

You went back ten years with your examination of some international etc. funds. IMO this is not enough history. Asset allocation tools use many more years of data.

Your reasoning does not make sense to me, because it uses

20/20 hindsight.

Since REITs have done way better than the S&P 500 during XYZ period, telling people to buy an S&P 500 index fund is also poor advice. Right?

Nope.

Also, note that I said the OP should use the tools /for ideas/. I do not write casually, Will. I try to be careful in what I say. If I mess up, I'll admit it.

We need to look forward.

Right, and microcap value stocks' returns have far exceeded the S&P 500's, historically speaking. Neither of these realities justifies an all EM portfolio or an all microcap value stocks portfolio. Do you understand why? I'll give you a hint: It's a statement made in every mutual fund prospectus in the U.S., among other publications.

Keep in mind, too, that the number of mutual funds has grown exponentially in the last thirty years. I suspect little was available by way of EM funds in the early 1980s, for one. I suspect the data of which you speak is dubious in its applicability here.

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I agree.

Good line about the previous allocation maybe having been all red on the roulette table. Chuckling here. :-)

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