Asset Allocation Targets

Drivin' home this evening
I coulda sworn we had it all worked out
You had this boy believin'
Way beyond a shadow of a doubt
--Bryan Adams

I've been rethinking my asset allocation strategy over the past couple of months. Given the bold, persistent nature of monetary and fiscal policy blunders made be bureaucrats both in the US and worldwide, chances of bigtime inflation have materially increased from where I sit.

As such, I'm starting to migrate toward asset allocations that better reflect an inflationary posture. Here are current positions and targets.

Stocks (current 6%/target 20%). I have not 'owned' stocks in quite a while. But I'm feeling the need to build some core equity positions. My preference is for cash rich firms with dominant brands that pay a dividend. I've taken a position in select tech, e.g., Microsoft (MSFT), and healthcare, e.g., Johnson & Johnson (JNJ), that appear to offer decent, but not great, value at these levels. I'm pretty sure that I'll be able to use price to my advantage to build more meaningful positions at lower prices.

Commodities (current 8%/target 20%). My commodity exposure has been 'in and out' now for a couple of years. I'm now looking to put longer term exposure on my sheets. In a world experiencing a blizzard of fiat money printing, the gold SPDR (GLD) is the obvious centerpiece. I would like a smaller core position in general commodity ETFs such as RJI and DBC. The subsector ETFs (e.g., DBO, DBE, RJA, JJC) are good trading vehicles, but they are hard to hold due to roll yield related slippage.

Fixed income (current 6%/target 10%). Hard to hold fixed income in an inflationary world. I'm keeping my duration short. Primary vehicles are CDs, but will look closer at some individual govie/corp issues as well as some bond ETFs if prices come down.

Alternative assets (current 9%/target 10%). I'm including currencies, real estate, and short positions in this group. Currently, my exposure here is a short position in the SPX (SH). Over time, I'd like to add some forex and perhaps a REIT or two.

Cash (current 71%/target 40%). Why such a large cash fraction in an inflationary world? Because inflation is not a lock, cookie. There's still a good chance that we experience a major deflationary wave lower given the levered state of the world. So a decent cash stash provides a cushion against a general price decline in risky assets. It also serves as a pool of opportunistic capital to pick up bargains at lower prices.

As always, these targets are subject to change as the world turns...

positions in GLD, JNJ, MSFT, RJI, RJA, SH