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I moved the message to the newsletter section, since it was related to my recent article. I'll be interested in where you're going with your question.

I'm 50 (my wife won't say). We plan to leave a large legacy to charity, and will likely only spend modestly from our investments.

Doug,

I had to take a long break from the board because I was juggling too many balls, and this is always going to take a back seat to my family and my clients. I've simplified my life in several ways over the past couple of years (finally following my own advice to clients), so I should be able to participate with reasonable frequency, and the board does help me think and improve my own skills, because people feel comfortable challenging me here to defend my views. This makes me a better advisor for my clients, which is my selfish reason for participating (obviously, I also hope to be able to provide some useful guidance to the enormous legion of do-it-yourselfers).

1. No, there was no conscious decision to make it 50-50, although there is some research suggesting that equal allocations generally work out best when future correlations are uncertain (and when are they NOT uncertain?). With neutral tax consequences (only relevant to a 100% sheltered portfolio), I typically allocate 50% to CF+RE, simply because it appears to have been the allocation that dampened volatility the most in my backtesting. I haven't done the calculation for my average client (because I have no average clients), but very few have portfolios as completely tax-sheltered as mine, and I would guess that 30% to CF+RE is more typical, and 20% common for all-taxable accounts. I also have some clients whose taxable portfolios remain 100% in global stocks, especially if they started with me several years ago (since they often have unrealized gains on all of their investments at this point, and I don't want to create large taxable events if they can tolerate the higher volatility of an all-stock portfolio). Once again, every person is unique.

2. Stocks of operating companies that are engaged in the sale or use of a particular asset are weak substitutes for commodity futures (which are not the same as commodities, but more on that in item 5). Commodity-based operating companies played a part in my client portfolios not dropping nearly as much as the market during 2000-2002 (the tech-light implications of my equal allocation strategy also made a big difference), but my clients would have been spared even more if there had been a decent commodity futures fund at the time (a high-expense fund using my least favorite GSCI Commodity index was the only option available then). For people who are older and need more secure diversification, I think it is important to use commodity futures themselves (and PCRIX still remains my favorite choice for people who can satisfy the extremely high minimum investment).

3. Large foreign companies earn major parts of their income selling to US customers as well (Nokia? Sony?). In the long run, imports equal exports, or somebody is just eating currency. BTW, for a while, I've been tempted to reduce my US allocation to less than 50%, as the rest of the world's stock market capitalization now exceeds that of the US (for the wonderful reason that the rest of the world is moving more and more away from government control and for the unhappy reason that this country is moving more and more toward it).

4. Actually, I would say almost 100% of the portfolio tracks against the US dollar, as the assets of a domestic business do not consist principally of cash. Paper currency is not wealth: wealth lies in tangible assets and intangible knowledge (and health and love and friendship and purpose and ... ). All of the investments I hold are intended to represent real assets.

5. Confusing commodity futures with commodities is like confusing universal health insurance with universal health care. Commodity futures are not "stuff": they are insurance policies taken out by producers against price drops, who pay a premium for that service in the form of a discount from the expected price of the commodity at the settlement date of the contract.

Commodity futures have provided a rate of return comparable to other businesses (such as insurance companies), while having a negative correlation to stocks. I don't own commodities (well, I've got some gold in a few teeth) nor do I want to purchase trusts holding actual commodities. A newsletter on commodity futures is definitely overdue, as this is the single most valuable diversifier to become available to the average person in the last few years.

It's a reasonable simplification, and I came very close to using it in my SAP allocation. I decided against it because the allocation to energy is higher than I prefer (55%). Not nearly as bad as GSG (71%), but this is a narrow enough sector to make me uncomfortable having so much in one category of futures.

Keep in mind, though, that I still prefer PCRIX (and even PCRDX) for those with a mutual fund supermarket available who can meet the minimum, as I think the use of TIPS as collateral adds value, and the limitation on energy of 33 1/3% results in a portfolio as balanced as my cocktail but with no need to rebalance within the commodity futures category because PIMCO is doing it for you. PCRIX is a no-brainer favorite, and I think the TIPS and rebalancing make PCRDX worth it, but at a 1.24% expense ratio, the latter is going to make some readers go ballistic: the ones who are prone to obsess over .01% expense ratio differences. I'm not naming any names, Doug. [g]

Offhand, no single book comes to mind, as my own understanding has developed from a series of articles in technical publications and not from any single book (except the Gibson book you told me not to recommend). A great list of online articles suitable for non-professionals is the reading list of one of my colleagues in the industry, Altruist Financial Advisors, at:

www.altruistfa.com/readin...ommodities

My entire philosophy of equity investing is based on the idea that individuals need to be able to pay for goods and services in the future at prevailing prices, so that the only true returns are inflation-adjusted returns. Food and energy prices have always been the most volatile, so agricultural and energy futures offer a hedge against the costs that most cause upset to a person's personal finances (how many people would have liked a boost in their portfolio from energy futures to pay for the surge in gas prices recently?). I don't want to overstate that benefit, but it IS in the back of my mind in guiding my philosophy. The one scenario that my approach to markets doesn't cover well is a deflationary depression, but in the unlikely event of such a scenario, the deflation is, to some extent, its own reward, since the prices for things we buy will drop

So, yes, you are quite right: it IS reasonable to look upon the investment in commodity futures as, in part, a hedge against increases in the cost of living for those very commodities. And the environment in which food and energy prices are rising out of control will often be a very bad environment for stocks and other traditional investments, so commodity futures may be the only investment to mitigate the harm in such an environment.

The SAP IS my personal portfolio: I no longer use the PIMCO fund personally. As I indicated in my SAP wiki discussion, I made a decision to switch to ETFs so that my personal portfolio could be duplicated at any broker. In order to turn my portfolio into an all-ETF version, I had to switch from PIMCO to the PowerShares ETFs. I apologize if my article was confusing, but I said PIMCO's fund represented my favorite open-end mutual fund: I didn't say I'm using it, and I'm not, as it isn't an ETF.

The PIMCO Commodity Real Return Institutional Fund is, in my view, usually the best choice for investors who can meet its very high minimum. Most of my clients can, and that is what I use for those clients. Most of the readers on this board cannot, but can purchase the 4 commodity ETFs in my personal portfolio (with trivial commissions if they choose a deep discount broker).

Someone who uses the 4 PowerShares ETFs in my portfolio will be diversified over 14 different commodities, without excessive weighting in any one category. PIMCO's fund consists of 19, which is certainly a little better (although PIMCO includes two animal futures, and those who are uncomfortable with that may prefer PowerShares, which do not).

In my view, the best index is one that is not overweighted in any one category. Using the 4 PowerShares ETFs in the proportions I use or using PIMCO Commodity Real Return Fund are both reasonable. I don't consider the Goldman Sachs Commodity Index to be acceptable, nor do I like the PowerShares DB Commodity Index ETF (ticker symbol DBC), because they overweight energy enormously (and because DBC only includes 6 commodities): my 4-ETF cocktail remedies that overweighting, and the Dow Jones AIG Index used by PIMCO already limits energy exposure to 33%.

I don't think it will be very long before either a Dow Jones AIG Index ETF or an even more balanced ETF becomes available, and there is a very good possibility that I will switch to it when it does. My wiki portfolio will reflect any such change. For those who haven't taken a look at my personal portfolio (which is, as I just said, my personal portfolio, and not a recommendation to anyone), including the running results, which will be updated monthly, go to simplyrich.editme.com/Sim...sPortfolio and see what I do for myself.

It was just to get an ETF: Vanguard Total International is a perfect mutual fund to cover both developed and emerging markets. One difference is that VEU includes Canada: I'm not sure if there is any other significant difference.

Well, I'm not a retiree, and have repeated until blue in the face that my allocation is my allocation, not advice for others.

As for deflation, the first rule is to repay all debts. After that, deflation itself is not a problem, as it means a reduction in the cost of living. Recessions lasting a year or two at a time have been a part of history forever, and I believe more investment wealth has been lost trying to avoid bear markets than in the bear markets themselves. As for a long-term collapse of the economy and society, I readily concede that I don't incorporate end-of-the-world scenarios in my portfolio allocation, and never will. You can't hedge the world.

You are absolutely correct that cash can diversify a portfolio. For most people, I believe the cost exceeds the benefit, but I've mentioned on more than one occasion that clients of mine who are retired are allowed to keep up to 20% in cash equivalents before I fire them.

Most of my clients plan to spend more than 1 year in retirement.