Smarty_Pants

Asset Re-Allocation Might Make S&P Rise 20%

Two items not discussed in the article but which still have impacts in the real world:

1) The article treats one's investment as a lump sum made at the beginning of last year. Most people's savings however are kept in 401k / Roth / IRA accounts where new investments are made every other week. This would tend to increase the average price in years where the market goes up and decrease it when the market is down. This could have significant impact on the year end performance measure (depending on the price changes throughout the year).

2) The large price increase in long maturity US Treasury bonds is an abberation in 2008. Consider some other types of bond funds that an investor might choose to get a bit more yield than Treasuries can return. Prices shown are at beginning of the year noted:

- - - FUND - - - - - - - SYMBOL - - - 2008 - - - - 2009 - - - LOSS

1) Pimco High Yield (PHYDX) - - - - 9.5 - - - - - 6.75 - - - 29%
2) Pimco Global (PADMX) - - - - - - 9.4 - - - - - 8.5 - - - - 9.6%
3) Pimco Muni (PMBDX) - - - - - - - 10.1 - - - - - 7.7 - - - - 24.8%

As you can see, a good many bond funds also had some hefty losses instead of healthy gains. This would significantly alter the results suggested in the article if substituted for the one bond fund that 'just happened' to have unprecented gains of 20% for the year.