New Normal? Still Seems The Same…

The monster theme coming out of 2008-2009 was the New Normal — so much so, that it’s actually become part of our vernacular.

Mohammed El-Erian has reached rockstar status in the press, arguably enhanced by this brilliantly catchy phrase. So being the intellectually curious person genius that I am, I decided to revisit it…

Disclaimer stuff: First. This is not investment advice. This was for fun. I’m not telling you to invest in any of the securities or allocations in any of these reports. If you share this, make sure you say the same thing to the person with whom you are sharing. Ok? We cool? Scouts Honor? Ok. Here goes…

Assumptions: Purchases made 5/1/09 (roughly when the New Normal report was released to the public). Rebalanced Quarterly. Assumed $150k joint income, 28% tax rate, and 15% cap gains rate.

Benchmark: S&P 500 total return

The New Normal Allocation: I recreated the mix from an interview Mohamed El-Erian gave to Bottom Line Secrets in November 2010 {seemingly scooping absolutely every major business news network in the process}. (HT:nalledge)

Below is the initial mix & securities I used:

  • 15% US Large EQ (Vanguard Total Stock Index)
  • 15% Developed Non-US EQ (Vanguard FTSE All-World)
  • 18% Emerging Market EQ (Vanguard MSCI Emerging Market)
  • 03% US Investment Grade Corporates (iShares iBoxx $ Invest Grade Corp Bond) –
  • 03% US Hi-Yield (iShares iBoxx $ High Yield Corporate)
  • 09% Non-US Bonds (SPDR Barclays Capital Intl Treasuries)
  • 05% US TIPS (iShares Barclays TIPS Bond)
  • 06% US Real Estate (Vanguard REIT Index)
  • 11% Commodities (PowerShares DB Commodity Index)
  • 05% Infrastructure (iShares S&P Global Infrastructure)
  • 10% Cash (1% yield assumption)
The results? (Click the graph– you can see the comprehensive Morningstar report). If you ask me — The New Normal looks about the same as the Old Normal. Actually kind of worse. (through 7/31/2011)
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

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