Asset allocation

Is this a set up for ‘sell in May and go away’?

There is considerable evidence for the old Wall Street adage ‘sell in May and go away’. It is well documented that ‘the Dow Jones Industrial Average has had an average gain of 7.5% during the November through April period and a gain of only 0.3% over the May through October period, going back to 1950’.

On the basis of current threats to the world economy investors should be aware of this effect since it seems that a number of elements are now assembled which pose potential threats to the world economy. These include:

  • Continued and expanding conflict in the Middle East region
  • An unstable economy in the European Union heightened by the refugee crisis
  • Continued weakening of the world economy with the threat of deflation
  • A slowing and indebted Chinese economy with manufacturing in decline and a weakening currency
  • Indecision by the US Federal Reserve

Of these factors, the continuing… Continue reading

Do growth stocks have a place in the portfolio?

After a difficult year for investors it is worth looking critically at the portfolio to see what adjustments need to be made. The question to ask is, do growth stocks have a place in the portfolio in a world in which growth is slowing?    Consider the logic of the following.

World growth is slowing

In Europe, growth for the last quarter has slowed significantly. Growth in the US economy is below its long-term average and is not sufficient to stimulate the global economy. In Asia growth is slowing: Japan has recorded an annualised fall in GDP of 1.5%. China’s economy has problems and the recent devaluation of the yuan is a clear indication that growth has fallen. In the BRIC economies, only India is likely to maintain a high growth rate during 2016.

So the global growth outlook is deteriorating at a time when developed economies… Continue reading

Asset allocation and Self-Managed Super Funds

Asset allocation is something that most investors seem to avoid or even ignore. It is really important to periodically review portfolio diversification and asset allocation. How often should it be done? It probably depends on how much change there has been in the investing environment but it is worth looking at every six months.

The factors which makes reassessment of asset allocation particularly important include changing interest rates, significant change in the value of the Australian dollar (AUD) and a changing investment environment. During 2014 the Australian dollar was near its long term high against the USD. A fall in the value of the AUD was a high probability so allocation of investments to overseas securities was an obvious move. Investors who took that approach have had more than a 20% capital gain in addition to exposure to a strong United States stock market. From the table below it is… Continue reading

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