Portfolio Review: The Schrodinger – 8 June 2011

Schrodinger Portfolio Review

Looking over the following Dashboard asset allocation plan, ask yourself what you might change if this were your portfolio.  Inflation is trending up, the economy is still in a funk, and interest rates are likely to rise within the next one to two years.  Would you stay put or would you begin to make some Tactical Asset Allocation (TAA) changes in this portfolio?

Here are the changes I am considering for this particular portfolio in light of certain information.  The owner of this portfolio has a very long investment horizon and income is not critical.  For a long time, this particular portfolio held no bond or income type of investments other than the ETFs that threw off dividends.  It is only in recent years that the asset allocation plan was altered to include bond ETFs.  Readers will note how skewed the portfolio is toward the value side.  This tilting of the portfolio played out very well over the last ten years as one sees in the performance results presented below.

Think through what TAA makes sense.  I'm considering lowering the Bond and Income asset class from the current 13% down to 10%.  This is not a major change, but it will reduce exposure to the coming problem of rising interest rates.  Of the available 3%, I'll likely shift 2% over to International REITs, bringing that asset class from 3% up to 5%.  Of course interest rates well may have a negative impact on that asset class.  As for the remaining 1%, I would likely move it to Large-Cap Blend.  That slight percentage move would bring LCB up to 4%.  These are not major shifts from our current Strategic Asset Allocation plan and that is why they are called Tactical Asset Allocation (TAA) moves.

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