The 200-Word Guide To Asset Allocation

March 24, 2010

Wall Street likes to make investing look complicated. It doesn’t have to be.

I was struck by this the other day when I was reading the latest research report from Tim Bond at Barclays Capital. Tim is by far my favorite researcher on Wall Street: While most analysts focus on the micro-picture and individual securities, Tim’s purview is macro-focused asset allocation analysis. I read everything that comes out of his shop.

In his most recent research piece—Asset Allocation: The next phase—Tim included a table that blew my mind:

Real Annual Returns, US Assets Since 1925 (Commodities Since 1969),
By Business Cycle Quadrant
Equities Bonds T-Bills Commodities
Low GDP, Low CPI 11.4% 10.1% 2.8% -4.4%
High GDP, Low CPI 10.6% 5.2% 1.3% 0.9%
High GDP, High CPI 8.2% -1.2% -0.9% 25.4%
Low GDP, High CPI -1.9% -5.0% -1.7% 3.8%
Source: Barclays Capital Gilt Study

There are other wonderful tables and charts in Tim’s report, but this one caught me.

Cutting through all the jargon, here is your guide to rolling asset allocations, using just two, widely available economic statistics. Essentially, you can boil Tim’s table down to this rule: Buy stocks and bonds when there's low inflation, and commodities when there's high inflation.

Does it solve every problem in investing?

No, but it’s a pretty good place to start.


Find your next ETF

Reset All