This Week in Finance - 9/3/08

Welcome to WallStreetOasis.com's latest This Week in Finance newsletter, where we profile the hottest investment ideas, substantive market data, incisive financial blogging, and the best under-the-radar research Wall Street has to offer.

Investments: Asset Allocation

On both a macro level, as the Bush administration's reliance on foreign debt to finance extravagant spending and tax cuts has helped push the US economy to the tipping point, and a personal level, where individual citizens are now facing personal financial crises from years of a national savings rate of zero, the American culture of debt has proven itself to be amongst the largest reasons for the trouble we currently face. As hope abounds for a reversal in thinking, both politically and economically, policies led by a fiscally responsible government that encourage saving and retirement planning will hopefully become more prevalent. Seeing this phenomenon, coupled with more options available to invest those savings, the various theories of asset allocation as we save toward retirement become more important than ever.

The rule of thumb in terms of asset allocation has been something along the lines of your percentage allocation to stocks should be "120 minus your age." Therefore, a twenty year old person should invest 100% of his savings in stocks, a forty year old 80%, and so on, with the rest split between bonds and other low-risk, income-generating investments such as cash and municipal securities. And this all before even taking into consideration the various options that make up a category as broad as "stocks" (domestic vs. international, growth vs. value, small-cap vs. large-cap). The Iowa Public Employees' Retirement System (IPERS) has a good asset allocation calculator that spells out the suggested asset allocation under conditions you choose and adjust, such as age, current assets, tax-rate, required income, and risk tolerance.

There are also many new theories on asset alloction, many of which involve investments in asset classes that include commodities and various alternative asset classes such as real-estate, hedge funds, and private equity. Though more complex and difficult to access, there is supposed value in these as many (commodities, hedge funds) can be counter-cyclical, and thus provide valuable diversification in an investment portfolio. TheSkilledInvestor.com has a number of good articles that address these issues.

Research of the Week: Read the commentary

One way to find good research is by looking into the firms most closely associated with investing. While nearly all successful investment firms produce various market commentary and security analysis as part of their investment and research process, many also, in fact, publish a good amount of this commentary as a service to both their clients and to potential investors. PIMCO and ING , two large global players, have a large amount of content available on their websites, with myriad articles and commentaries covering a variety of topics. Other firms who operate within a narrower band often publish their monthly or quarterly commentaries as it relates to their investment universe. Pzena Investment Management and Horizon Asset Management are two such firms. In general, it never hurts to search and find out what is publicly available from any investment firm that you respect.

Blog-Wrap: Not what you expected

In terms of headline stories, much of the coverage this year has been focused on rising energy prices, a weak housing sector, and a falling US dollar. However, as of the start of September, the numbers actually tell a different story. Bespoke Investment Group examines how homebuilders and US dollar indexes are actually up on the year, while the energy sector is down.

TWIF Notes: Just for fun

Check out the Hedge Fund Implode-O-Meter for the latest in hedge fund collapses!

Selling high on the Cubs. The supposedly cursed Chicago baseball team could not have picked a better time to have great success on the field for owner (and now seller) Sam Zell.

Get Schooled.

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Questions? Comments? Send an e-mail to Hedgehog@WallStreetOasis.com or send a private message to him at WallStreetOasis.com. To read previous issues of This Week in Finance please click here: http://www.wallstreetoasis.com/xtracker/type/simplenews



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