I’ve posted Entry #226 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s titled How Do Shiller’s Findings Change Our Thinking on What Stock Allocation Is Optimal?
Juicy Excerpt: There are some stunning words that appear on Page 37 of my copy of Jeremy Siegel’s Stocks for the Long Run. Siegel states that: “The recommended equity allocation increases dramatically as the holding period lengthens. The analysis indicates that, based on the historical returns on stocks and bonds, ultra-conservative investors should hold nearly three-quarters of their portfolios in stocks over 30-year holding periods. This allocation is justified since stocks are safer than bonds in terms of purchasing power over long periods of time. Conservative investors should have nearly 90 percent of their portfolio in stocks, while moderate and aggressive investors should have over 100 percent in equity. This allocation can be achieved by borrowing or leveraging an all-stock portfolio.” The table that appears on the same page as these words indicates that risk-taking investors with a 30-year holding period are best served by a stock allocation of 131.5 percent, according to the historical return data.
Could this be real?