Tuesday, May 7, 2013

Dividend Growth, Asset Allocation & Suggested Reading

The market continues to grind higher. I will be able to put some money to work soon but where is the value? My dividend growth portfolio is missing Colgate-Palmolive and Chevron. CL is overvalued right now so I will wait for a better entry point. Chevron, Wells Fargo and Lockheed-Martin are definitely on the American stock dividend growth radar for me right now.

If they continue to rise I may use their overvaluation as an opportunity to diversify my portfolio with foreign stocks, probably through ETF's which have nice yields. If I can find monthly distributions so much the better.

Also in the cards are an entry into foreign real estate and diversification into small cap value stocks, both domestic and international. Over long time horizons, commodity stocks and ETF's have proven to really lower the volatility of one's portfolio while increasing returns so my eyes are open there as well.

I have a long time horizon so I will be underweight fixed income, interest bearing bonds. I already hold a slightly leveraged muni ETF in my taxable account which earns over 5% tax free and may add a slightly leveraged corporate bond ETF to my or my wife's IRA to lower the volatility. This diversification will not raise returns over the long term, however. Studies have shown that for the small investor that honor belongs to equities, real estate and commodities.

The studies on asset allocation that I've read have been eye opening. Diversification through holding multiple asset classes is a free lunch. It has been demonstrated that there is lower volatility with higher returns so long as one's time horizon is at least 10 years. I wants me some of that :)

Suggested reading includes:
Asset Allocation: Balancing Financial Risk by Roger Gibson
The Ivy Portfolio: How to Invest Like the Top Endowments by Faber and Richardson
The Intelligent Asset Allocator by William Bernstein
Pioneering Portfolio Managment by David Swensen (the Yale endowment manager)

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