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From Andy Rachleff, Vice Chairman, University of Pennsylvania endowment investment committee President & CEO, Wealthfront Inc.:

Financially sophisticated individuals start with an asset allocation. For someone under 40 you should probably allocate around 30% of your assets to fixed income securities (probably half in treasuries and half in TIPS) and the remainder in securities that have more appreciation opportunity (10% in real estate, 35% in US equities, 20% in foreign equities and 5% in emerging market stocks). it's very hard to outperform the market in fixed income so i recommend buying treasury and TIPS ETFs. For your US, foreign and emerging market equity allocation you might want to try wealthfront.com to identify money managers who have outstanding track records (I am a co-founder of wealthfront). Wealthfront currently doesn't offer any real estate managers so a REIT ETF is probably the best bet.

By the way, when buying TIPS (or any kind of Treasurys), you are basically saying "Yes, I like the fact that the USA is deep in debt and I want it to go more into debt rather than balancing its budget!" That is what Treasury bonds are -- the USA borrowing money from you and promising to pay it back. This is where the debt comes from!

Somehow I do not think many people realize this...

There is zero default risk in US Treasuries because the government has the capability of printing more money. Can you name any other type of bond or fixed income that has zero default risk?

Okay, but I never said anything about default, so I don't know what this has to do with anything! As you know, when the government prints more money, it dilutes the value of the existing money. So then, when you buy Treasurys and they get paid back, you made your money by silently leaching it out of the pockets of all other Americans, with the government as intermediary. What a great financial model!

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