From a practical point of view I still cannot see any reason to change my allocations. My family lives on our savings, so this is not idle intellectual chatter. The FED and governments and central banks everywhere are chopping interest rates down to zero which affects all retired people and others living partly or wholly on their savings. This is happening faster than inflation at the consumer level is fading, but we can finally see some prices dropping.
It is still possible to earn 3-4% in funds such as Vanguard's VSGBX/VSGDX, VFIIX/VFIJX, and if necessary in the municipal VWSTX/VWSUX. These are NOT money market funds, so they can go down if interest rates rise, but they won't go down very much at all. I am still keeping several years' worth of additional necessary budget money (beyond the earnings of the above) in money market funds which pay laughably little now. I don't like to spend capital at all but if it becomes necessary, it's there. The reason I chose and still prefer Vanguard for all these funds is for their extremely low operating costs charged to you and me. When interest rates are very low, low operating costs are even more important than normally. I don't have ANY connection to Vanguard in ANY way except as a user.
Beyond these very basic income funds I have some gold and the oil and gas trusts and Hussman's Total Return Income Fund HSTRX which I have discussed before. And a smaller position in Rydex RYMFX which can be long or short commodities and bonds and currencies according to rules set by Trader Vic Sperandeo. That ~25% of the total is to guard against inflation and/or US dollar weakness. Hussman's fund mainly holds US Treasury inflation-protected notes (70%) with some currency and gold holdings. He varies these holdings according to his judgment. HSTRX and RYMFX are reasonable alternatives for the long run in small amounts.
I didn't have this entire portfolio for the entire past year, but if I had and had held them in equal parts I'd be ahead almost 7% on the year. As it is I am down 1.47% because I was a bit late getting out of some losers. Honesty is painful, but I am still happy for my family when I hear people talking about 25-50% losses in 2008.
These are faraway days from the 1990's or 2003 when 20-30% or more annual gains were possible. Now we have to scape by, and we may have to stay that way for some time. Stay small and stay safe for now is my goal. Keep solvent and ready to move if conditions warrant, but I'm waiting until the year end and early new year selling abates. De-levering continues for now. I'd rather be late to the party than go bust. These basic allocation considerations, not necessarily the exact vehicles, apply to everyone now, regardless of asset totals. Losing big is not an option.
I'm not able to post the chart of the mutual funds at the server, so here is another way to see it: