Isasi Wealth Advisory

Shout-out to Giampiero Riccio, CFA who, in 1995, encouraged me to pursue the CFA designation, at the time offered by the Association for Investment Management and Research (AIMR), now rebranded as the CFA Institute. I have no means to prove it, but it is quite possible that Giampiero and I were among the first charteholders based in Venezuela, then an emerging country with a nascent asset management industry. The rest is history.

This short Morningstar interview with IRA expert Ed Slott gives us more context on our recent article on Roth Retirement Savings Plans.

There is nothing inherently temporary about the 60% (stocks) and 40% (bonds) portfolio. It works because it reflects a statistically appropriate mix of exposures to value creation forces on one hand (companies willing to grow and maximize profits) and the inherently counterbalancing force of base interest rates on the other (if things go well rates rise, and vice versa). If markets are reasonably free from intervention, this mix should work. Furthermore, in the face of an economic slowdown, stock prices will suffer due to lower expected economic activity and bonds will thrive because discount rates should fall (this is diversification at its best). For most of the rest of the time, that is, while the economy is not too hot or too cold, bonds will just pay its coupons and coast along with only one third of the volatility of stocks, and this is also diversification. In rare occasions, stocks and bonds will underperform at the same time (no diversification), particularly on the face of sudden inflationary bouts, as it happened in 1974 and 2022. The 60:40 portfolio remains an all-weather, middle-of-the-road portfolio that can be further optimized by adding other low correlated assets to the mix: real estate, gold, and even some well-run hedge strategies, among others. The role of private equity, private credit, infrastructure and even crypto, I will leave aside to discuss on another day. As for the occasional misalignment in market valuations (i.e., extreme valuations), we just need to remember that diversification, periodic rebalancing, and recurrent contributions (when possible) are the best actions not only to mitigate its effects but to take advantage of them. [The above is NOT investment advice. Each investor has its own needs and circumstances and will require a personalized recommendation]. From the WSJ (paywalled):

Gen Xers had to learn to get ready for retirement by themselves (401k - 1980s) and endure going through the dot com burst (2000), the Great Financial Crisis (2007-2008), and the COVID-19 pandemic (2020). There is also the student debt, the high-cost college education for their children, and the financial support for aging parents. Many are reaching retirement and may not feel well prepared. It is never too late to have a conversation with a trusted financial advisor and devise a plan. It may improve your understanding and give you more control about your situation. From the WSJ (paywalled).