Asset Allocation: Building a Better Balanced Portfolio (Personal Finance Symposium IV - 2012)

Presentation by Craig Israelsen, PhD, Brigham Young University at Financial Symposium IV. The symposium was held on April 25, 2012 at the University of Missouri.

[pralaysangma]

This is the best portfolio management video I have ever came across. Thank you for this video.

[sku]

Good info I was not aware of the how close the Russel 2000 and S&P 500 move in the same direction over 75% of the time .Makes me rethink of how to build a truly diversified portfolio .

[MizterRite]

You can easily back test this 7Twelve asset allocation on the free portfoliovisualizer site. Starting in January 2007 versus a benchmark index like the S&P 500 you'll see that the 7Twelve allocation has greatly under performed since the first half of 2013 till the end of September, 2022. And the S&P 500 has a better Sharpe ratio (which is a measure of risk vs reward) of 0.5 vs 7Twelve's 0.3, since 2007. I wouldn't count on this 7Twelve allocation over performing much of anything over the next 50 years. But if you have that kind of time horizon, learn how to invest or trade. And do your own due diligence.

[joelm.]

great presentation. My concern is that all of this data is collected over a time period where Fed Fund Rates went from 9% in 1970 to a high of 19% in 1981 to basically 0% now.

Imagine what the next 40 years will look like as rates go back up to the historical mean or worse, back to the same high. We will see a collapse in bond prices and real estate performance.

[roberthamill]

Very enjoyable and informative presentation. I found helpful his explanations of asset classes that I didn't quite understand before - natural resources, commodities - for starters.

[ifitbleedswecankillit]

I'm now using this strategy in my Roth IRA. Very informative video!

[sirazrocky]

You sir have done a enormous job and I thank you for that

[fabsdellagi]

Excellent presentation! Thanks for the insight provided to investors looking for guidelines in allocating resources earned the hard way

[davidknecht]

I'm a BYU grad so I have a bias toward Dr. I. I think this is fascinating. At 17:44 he talks about the prior 40 years being the best 40 years period in history for bonds returning 8+%. This I assume is due to falling interest rates from the 1970's astronomical highs to the near record lows of post financial crisis days. If we assume that interest rates are not likely to repeat that stellar performance going forward from 2018 anytime soon, I'd be very interested to see what the 7/12 model produces with a more "normal" (whatever that is), interest rate environment. So the question I have is how would the graphs at 43:42 and 59:30 look either 1) without the Bond (and/or possibly REIT) asset classes included, or 2) with those classes included but on a more normal return basis? If that data is available it would sure be interesting to rerun the numbers and see what it shows relative to the straight S&P 500???

[rdilaura]

Excellent talk. One MISTAKE around 31:25, he references the EFT work of Markowitz, saying his first name is "Henry". His first name is actually HARRY (Harry M. Markowitz). Won the Nobel Prize in 1990 for his pioneering work in the field since 1952. See other YouTube videos in the Masters of Finance series to see him discuss his work first hand (since his papers are a very difficult read unless you are a math major).

[gmo]

Excellent presentation. This was presented very well (guy is what I would call a true pro) and one of my favorite parts was the, "Nothing is funner than an x y chart" comment. lol
Glad I came across this. I think I learned a few new things.

[stingaling]

Wow - didn't realise commodities were so volatile.

[pierremichelestival]

This is very valuable information. Sadly not all the 401k offer theses options. And I wish he did compare his portfolio with Ray Dalio's or other. Especially at 59:26. He compares his Salsa with a tomato.

[MBarberfanlife]

"We all stare at 2008. It's like Waterloo." lol!

[george]

👍The 7 Twelve portfolio.
Is annual rebalancing better than rebalancing only when an asset class deviates significantly from its target weighting?

[DrPhillipMcCracken]

This is a great portfolio and I've seen other advice with similar asset class distribution. I question the ER with actively managed funds. I think one would be hard pressed to diversify over 12 funds and keep the ER at 0.68%; that is 0.057% per fund and it ain't happening...just sayin'. Either way, the indexed portfolio wins after expenses - if he calculated in expenses at 55:39 the passive portfolio would likely be the tallest bar.

[johnbrown]

I can understand the logic in owning all the suggested asset classes, but I question the logic of having equal amounts in each. Only 8% in domestic large caps ???

[INPEROSA]

It is far better to do it yourself, i.e. Allocating a portion to your portfolio in an emerging country like china or a country that has gone through a mayor crisis like Egypt.
I believe the trick is to invest in cheap (low P/E) index that correlates the least with the rest of the group.

[jinjurbreadman]

i'm 20 mins in. is the message at the end "buy things other than the SP500"?

[MetalBum]

@mizzou What are your thoughts on a three or 4 fund that also has some Emerging market funds and Gold/Silver/Miners funds especially since Ray Dalio and others are suggesting ther's a major shift into gold for hedging and emerging markets for long term growth potential. In comparison to slowing developed markets and low or negative yield bonds?