Balanced Asset Allocation: How to Profit in Any Economic Climate

Chapter 11The Balanced Portfolio

The emphasis up to this point has been on establishing the conceptual framework for building a well-balanced portfolio. This makes sense because the fundamental principles rely on reasonable expectations of human and economic behavior that can be anticipated to persist through time. Therefore the concepts should be your focus. For this reason, little data has been used to support the cause-effect relationships.

Naturally, the goal has been to emphasize the logic behind the process rather than the exact outcome. Historical data is never perfect, so a portfolio strategy that is solely based on past returns is not as compelling and reliable as one that is dependent on reasonable cause-effect relationships. Moreover, since you have the flexibility to use different asset classes than the ones I have used, I did not want to present a specific portfolio as the only answer. If you believe in the concepts, you can apply them across various asset classes through time.

Notwithstanding the practicality of the framework presented, many people, perhaps including you, want to see the numbers. You may wish to ensure that the historical record supports the theories and conclusions I have presented. In this chapter, I will share the return series since 1927 for the simple balanced portfolio presented in the previous chapter. I use this allocation because of the long-term data that is available and because these four asset classes fit cleanly into the balanced ...