• Yale’s P David Swensen Yale Individual Investor Portfolio Annual Rebalancing. One can classify its 6 ETFs into the following categories
    • Growth: 30% in US stocks, 15% in international stocks and 5% in emerging market stocks. Total 50%. 
    • Inflation: 15% in TIPs and 20% in US REITs. US REITs can be classified to Growth category too. Total 35%
    • Deflation: 15% in long term Treasuries. 
The second and third portfolios are not directly related to the four pillar framework but they are constructed with these concepts in mind. We believe the four pillar framework is very intuitive and helps to classify various investments related to economic cycles. This is especially true for bonds: 

 

So next time when you see bonds in your portfolio, don’t just simply lump them into fixed income or ‘safe’ asset. They actually serve for various purpose.

In fact, you are encouraged to use our ‘Static Portfolio’ tool to construct a ‘permanent’ portfolio using ALL bonds, similar to our Permanent Income Portfolio (which uses dividend stocks and REITs). Note that even for a retiree, we believe some dividend stocks and REITs (up to 20%, for example) are still required to construct an optimal portfolio, even from risk point of view. See our previous newsletter June 25, 2012: Conservative Allocation Fund Upgrading.

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