Here is the beginning of the first article I wrote on mutual funds. "When I chose the TIAA-CREF retirement program in 1975, I had two choices: the CREF stock account and the TIAA guaranteed annuity (fixed) account. I could specify any percentage division on how contributions would be invested. I made what was considered a moderate choice: 50% stock and 50% fixed. This might seem like a very conservative choice now, but remember the Standard and Poor 500 had lost 27% of its value in 1969-1970 and 43% of its value in the bear market of 1973-1974."
Very few investors would now suggest this 50-50 asset allocation for a retirement account, so I want to look more closely at changing patterns of asset allocation. Most of the data I will be quoting comes from TIAA-CREF Institute Research Dialogue 65 "Trends in TIAA-CREF Participant Premium and Asset Allocations: 1986-2000" by John Ameriks.
Before 1952, all funds went into the traditional TIAA annuity. Beginning in 1952, premiums could be allocated between the CREF stock account (variable annuity) and the TIAA (guaranteed) account. By 1986, 46.2% of the participants chose the 50% equity and 50% guaranteed allocation. In 1999, only 12.6% made this choice. In 1986, only 13.4% of the participants chose more than 50% equities while 40.3% chose less than 50% equities. In 1999, 59.8% of the participants chose more than 50% equities.
Here are the average asset allocations into equities from 1992-2002 for TIAA-CREF participants, where in later years the other choices were Guaranteed, Fixed Income, and Real Estate.
| 1992 | 38.4% |
| 1993 | 41.5% |
| 1994 | 43.6% |
| 1995 | 48.4% |
| 1996 | 52.4% |
| 1997 | 57.1% |
| 1998 | 59.8% |
| 1999 | 62.3% |
| 2000 | 60.9% |
| 2001 | 56.5% |
| 2002 | 50.5% |
Two changing patterns are very obvious in this TIAA-CREF data. First, there is a long-term increase in contributions to equities from 0% in 1951 to 62% in 1999. Second, there are changes in allocation resulting from the reaction to market gyrations, most obvious from investor reaction to the 2000-2002 down-market.
I believe it is reasonable to think of these pattern changes as the result of "general investment advice". The long-term increase in equities, resulting from the general advice to contribute a larger percentage of a retirement account to equities, is certainly sound.
The question in my mind is, "How much of present investment advice is based on looking back at the great bull market of 1982-1999?" It does seem likely that if we had a long bear market, general investment advice would recommend a lower percentage in equities. Asset allocation decisions are the most difficult and important decisions that investors make and, of necessity, they look backwards. We would like to choose a stock allocation based on how that allocation will perform in the future, but we obviously don't know the future and we hear both bullish and bearish predictions for the years ahead. Thus, we choose an allocation based on the past. Can we be sure that the general investment advice to contribute 60% to equities is better advice than to contribute 40% to equities? The advice to contribute 50% to equities turned out to be fine for 1975 but not so good for 1982, the beginning of the bull market. General investment advice has changed over the years I have been investing but I am no better at discerning the right advice for the future. (I do think saving, diversifying, and being patient is consistently good advice.) In ten years we will know what general advice we should have used for 2005-2015.
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