Thursday, January 5, 2012

Where to Put Your Money in 2012, Maybe Not

Just read an Op Ed in the WSJ from Burton Malkiel about where to put your money in 2012. At least he starts off admitting that it is virtually impossible to make short term forecasts:

Presenting an annual investment outlook is a hazardous task. At the start of 2011, investors were warned to eschew the bond market. Pundits described the low yields of U.S. Treasuries as a "bond market bubble." In fact, if you had bought 30-year U.S. Treasury bonds at the start of the year when they yielded 4.42% and held them through 2011, when the yield had fallen to 2.89%, you would have earned a 34% return.

Meanwhile, U.S. stocks stayed flat, Europe and Japan declined by double digits, and emerging markets suffered even greater losses. Last year again demonstrated that it is virtually impossible to make accurate short-term predictions of asset returns.

He then goes on to predict low returns for bonds, 7% for stocks, and says that emerging markets are the place to be. He may be right, he may be wrong, only time can tell. However, one could have easily made this same prediction, as I am sure a lot of people did, 10 years ago. Instead we saw stocks do nothing and bonds surge. Since I don't know what is going to happen in 5 minutes I certainly can't predict the next 10 years. The better course of action is to stay in harmony with market trends.

He ends his Op Ed with some more advice about making sure that you keep investment fees low. In a world where everyone is doing the same asset allocation investing then this makes sense, the only way you can do better is to either be more tax efficient and/or have lower expenses. However, this misses the big picture---what is the point of saving 1% in expenses when you are losing 30% of your money?

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