William Bernstein, who co-manages $156 million at Efficient Frontier Advisors, advises people to spread their bets far and wide, even into downright risky assets. For investors in taxable accounts, he suggests a portfolio that places 35% in Treasurys, 30% in municipal bonds, 25% in a short-term corporate bond fund and— here is the kicker—10% in stocks. For investors in tax-exempt vehicles, he suggests 45% Treasurys, 30% in a short-term corporate bond fund, 15% Treasury Inflation-Protected Securities and, again, 10% in stocks.
It might sound crazy, but the numbers bear out this approach, according to an analysis by Morningstar for The Wall Street Journal. Using return data and delving deeply into financial arcana like standard deviation and asset correlations, the study found some surprising results: On average, this asset strategy would have resulted in annualized returns, including reinvested dividends and interest, of about 4.8% and 4.9% for taxable and tax-exempt portfolios, respectively, since March 1997. That compares with average annual returns of 3.14% for one-year CDs, according to Bankrate.com, and 3.2% for 30-day Treasury bills during that period.
Source: Wall Street Journal
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