Last week, we met Mr Beerver and discussed his single greatest opportunity for saving some cash in College… living with mom&dad for a couple more years.
By doing this, he could easily manage his planned $1,200 in yearly savings and finish school with zero debt. Free beer forever, it would seem will be his destiny!
Today, let’s take a look at Mr Beerver’s aptly-named Beer-Plan.
But first, a reminder that the family that drinks together, stays together from Weird Al.
Like many of us, Mr Beerver works hard but he hardly gets any respect for it. He puts in his hours and works diligently but all his life is a picture of mediocrity. Well, that’s not quite right… Mr Beerver is mediocre at everything EXCEPT saving! This is the only area aside from drinking lots of beer he excels at. Throughout his life, he’ll be saving 10% of his salary in order to try to earn as much free beer as he can later on.
If he does well, he’ll be a millionaire in no time! By “well”, I mean if he can get in an annualized post-tax 5% return on his investments, he’ll be able to afford all the beer he can reasonably drink!
Right now however, such an outcome is about as dubious as some gnomish business plans I’ve seen. Mr Beerver’s portfolio is currently quite reckless as it holds but a single stock. A quick look on the right will show you just what happens with a one-stock portfolio. Mr Beerver was up some 200$ at one point but is today down by 25$.
OK, but what if he’s a super-stock picker and this one pick will send him to the moon? Not likely. Asset allocation has much more to do with becoming rich than actual asset-picking. So, let’s take a look at Mr Beerver’s asset allocation program.
He will be putting 25% of his savings into individual stocks. That’s a lot. Mr. Bogle of the Vanguard funds would not approve. 10% may be more advisable but the poor guy is an absolute bonkers-nutso-cowboy.
He’s also putting 25% into gold and silver… this too is much more than any pro except a total gold-bug would recommend. Mr Beerver on top of being nutso has also caught gold-fever.
Next up, REITS, where he has 20% of his cash. Yeah… not exactly the kind of standard portfolio a good banker would like to see you have there, Mr. Beerver.
10% in a bond fund. For your age, I suppose that’s ok.
10% in the S&P ETF is less than some pros would have you put in…
10% in an international ETF… the same weighting as for US stocks!? Sacrilege!
Mr Beerver’s likely to get a few raised eyebrows with this allocation!
CNN Money for example tells me I should have the following:
Bonds 10% Woo hoo! We agree!
Small cap stocks 20%
Large cap stocks 50%
Foreign stocks 20%
THE HECK DOES THAT MEAN!? Who cares about a company’s market cap… that just changes by number of shares and price and is completely unrelated to profits or growth! Here’s a graph comparing Google (the ultimate large-cap) with the Russell small-cap index that shows just how nutso-bonkers the idea that market-cap will diversify your holdings:
So, 70% in U.S. stocks, then!? And here I thought Mr. Beerver was a cowboy! He’s starting to look downright tame!
The American Association of Individual Investors says you should have 10% in bonds and 90% in stocks. Woah! Now we’re talking spaghetti western lunacy… I bet they frequently drink Wild Blue beer too!
John Boggle of Vanguard would say to have roughly your age in bonds, the rest in his funds and forget about timing the market or stock-picking. Not bad advice, really.
Looks like no one agrees on what the perfect allocation is. Mr Beerver’s would seem to be no better or worse than any other. Over time, his portfolio will balance out as he gets more money to invest in a responsible way and his results will speak for themselves one way or the other. For now though, that’s enough thinking and planning for Mr Beerver. A few bottles of Labatt’s Ice Beer await him!